The Expert Podcast

If you're in the building trade, you already know the punchline to this story. You want to build more, you want to do new developments, remodels, additions, contractor work, but the problem is money. Either it's too expensive for the client to build what they want to build, or it's too expensive for you as a contractor to get permits, buy materials, even get help and labor. It may be too expensive because of the carrying cost. Many times, for new construction, the permit fees are part of it, but also, if the permits take six or eight months, now you have the carrying cost of that contract or that property. That interrupts the viability of the project.

We've seen many projects where, by the time you get the permits done and the approvals (and some states have excessive approvals from third-party organizations), the material costs may have gone up since then, and the interest rates may have gone up since then. So now, the project is no longer viable.

In the face of all that, the real estate market shows no signs of letting up. According to Fortune, housing prices will be sky-high for years to come, so prices aren't going to come down. Even though interest rates are pretty high, prices are not going to come down.

In addition, what about interest rates? According to Yahoo Finance, mortgages could become more expensive, partially because rates will go up, but partially because of the way that mortgages are underwritten. More and more borrowers will be ineligible for the standard rates and have to jump to a higher rate structure.

What about rates themselves? Well, very likely, even though there's a slight pause and a little bit of a reprieve in the market, with rates having dropped down a little bit (a quarter percent), more than likely by 2024, in the middle of the year, they're going to bump up again. More interest rate hikes are needed. Part of it has to do with inflation, but even if inflation is tamed, the Federal Reserve needs to keep rates higher and bump them up in order to get proper returns for their bonds. The risk profiles are higher. Moody's just downgraded the U.S. debt, so that's going to result in higher rate returns.

So those factors are all pushing towards a tighter construction market and a tighter real estate market. I know you have an opinion about that. Put it in the comments below.