New Home Builders Targeting Buyers

as Housing Starts Rebound

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Even with the unanticipated jump in new home construction in September, the demand for new homes is falling due to high prices and mortgage rates. Builders are lowering their asking price to boost buyer traffic – some by as much as 19%. 

About 25% of homebuilders have begun reducing their prices or offering other buyer incentives to attract more buyers as foot traffic falls. Single-family home construction rose nationwide by 3.4% in August according to a Commerce Department report released this past Tuesday. Economists have called it a “surprising bounce back” after five consecutive months of decline.

Still, according to data from the National Association of Home Builders (NAHB), builder sentiment in September fell to its lowest level since 2014. The NAHB report cites chief builders concerns the rising mortgage rates, which topped 6% last week and continues to rise and supply chain disruptions construction delays.

In addition to pricing concessions, more than half of the builders report using buyer incentives to boost sales including offering mortgage rate buydowns, free amenities and upgrades according to the recent NAHB/Wells Fargo Housing Market Index.

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What About A Housing Bubble

Lawrence Yun, chief economist for the National Association of REALTORS®, puts the blame for the new-home market’s slump squarely on mortgage rates. “However, this month’s (September) increase in housing starts implies that builders still see profit opportunities, even as they concede on prices,” Yun says. “Material prices, including for lumber, have been moderating, and fully completed homes are selling fast.” Unfinished homes that remain under construction are the ones sitting on the market for long periods, Yun adds.

The NAHB agrees with Yun’s assessment. “Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new-home purchase out of financial reach for many households,” says Jerry Konter, the NAHB’s chairman. “In another indicator of weakening market, 24% of builders reported reducing home prices, up 19% last month.”

NAHB Chief Economist Robert Dietz adds that the “housing recession” shows few signs of abating as builders continue to grapple with elevated construction costs and buyers now face 6%, and higher mortgage rates.

Home building permits—a gauge of future construction—fell in August to the slowest pace in more than two years, the Commerce Department reports. The cooling of the real estate market, even in the hot DFW metroplex, provides buyers with a rare opportunity to strike a good price in a seller's market. New homes are available and are even more affordable at the moment with incentives like builder's buydown of interest rate below 5% - but this won't last long!

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Multifamily Properties Continue to Shine

Multifamily construction, on the other hand, has climbed to the best monthly performance in 35 years. “Apartment demand has been strong, with rents rising at a historically high pace,” Yun says. “Those consumers unable to qualify for a mortgage at higher interest rates are renewing their rental leases. Job creation is also boosting the rental demand.” Construction on multifamily dwellings surged 28% in August to an annual pace of 640,000 units, the Commerce Department reports.

Still, builders remain worried. At The Federal Reserve’s next meeting they are expected to raise the benchmark interest rate by yet another 75 basis points in their effort to curtail inflation without forcing a recession. Housing analysts are concerned about the further impact that could have on mortgage rates and on home affordability which has fallen since the beginning of the year due to both rising home prices and mortgage interest.

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The Silver Lining

Some economists say the 'silver lining' is that the continued housing inventory shortage may be a saving grace that could keep the real estate market from a deep downturn. By some estimates, the nation was short about 5 million homes before the onset of the pandemic. “The shortage is not going away soon,” Yun says. “The near-term single-family outlook is complicated due to high mortgage rates; however, the long-term outlook for homebuilders is bright due to the need to build more to fully relieve the housing shortage.” 

If you are renting, the decision facing you today is:

A) do I continue to roll the dice on my rent not escalating out of reach while the money I have saved and invested continues to erode and I not only lose purchasing power due to rising inflation but am pushed farther away from being in a position to buy a home, or

B) do I take advantage of the opportunity to purchase a home while I can - have some protection of our networth through home value appreciation - use mortgage instruments like ARMs and other low down payment loans and avoid the uncertainty of rent increases while we weather the coming economic uncertainty?'

If you picked B), then fill out the contact information below and let's get to work. Your new home awaits and we will work with you and a lender to make the "American Dream" of homeownership happen! You could be in your new home before Christmas!

In the following video, Wade Betz, Senior Loan Officer for AXEN Mortgage and a member of our team of professionals, briefly explains why you should own versus rent. In addition to building your net worth, as Wade explains, you also benefit from a variety of annual deductions such as a portion of your property tax as well as your mortgage interest.