Shown below is my newly listed compound in the Austrian Alps, complete with it's own paramilitary defense group—15 bedrooms, an indoor pool, and a garage full of opulent sportcars.
ACT now. $128 million or best offer.
Tight Supply Fuels Demand for Newly Built Homes
A recent fall in mortgage rates relieves a source of industry pressure
By Nicole Friedman, WSJ
May 2, 2023 5:30 am ET
Mortgage rates have fallen from the 20-year highs they hit in autumn.
Home builders are enjoying stronger-than-expected business this spring, capitalizing on the recent fall in mortgage rates and the shortage of existing homes for sale.
Last year’s rapid rise in mortgage rates made home purchasing far more expensive for most buyers, slowing home sales and pressuring the home-building industry. Home builders pulled back on land acquisition and new construction.
Now, new single-family home sales are bouncing back with supply tight in the existing-home market. Active listings in March stood at roughly half of where they were four years earlier, according to Realtor.com, in part because higher mortgage rates made many homeowners reluctant to sell and give up their current low rates. (News Corp, parent of the Journal, operates Realtor.com.)
That low inventory has put home builders in a good spot. Newly built homes made up about one-third of single-family homes for sale in March, up from a historical norm of 10% to 20%.
Matteson Rushing bought a newly built home for just under $300,000 in Oakwood, Ga., this year. PHOTO: DAVID AARON HUNT
Home-builder stocks have surged since the start of the year. The S&P Homebuilders Select Industry stock index is up 17% so far this year as of Monday’s close, outpacing the S&P 500’s 8.6% gain. D.R. Horton, Lennar and PulteGroup, the three biggest U.S. builders by volume according to Builder Magazine, have posted year-to-date stock gains of 22%, 24% and 44%, respectively.
D.R. Horton said last month that net sales orders for the quarter ended in March fell 5% from a year earlier, beating analysts’ expectations. These orders rose 73% from the prior quarter.
“The builders aren’t the only game in town, but they’re more the only game in town than they have been in a very long time,” said Carl Reichardt, a home-building analyst at BTIG.
Buyers are also more comfortable now that mortgage rates have come down from the 20-year highs they hit in the fall, when average rates topped 7%, executives said. The average rate for a 30-year fixed mortgage was 6.43% in the week ended April 27, according to Freddie Mac.
“The consumer has really adjusted to this new rate environment,” said Sheryl Palmer, chief executive of Scottsdale, Ariz.-based builder Taylor Morrison Home, on an earnings call last week. “They no longer believe that rates are going to return to 3% or 4%.”
Builders ramped up activity during the pandemic-driven housing boom, but they struggled to keep up with demand because of labor shortages and supply-chain problems. As construction times slowed, builders amassed a large backlog of homes that were under construction but not yet completed.
Builders were aggressive to cut prices and offer incentives, especially mortgage-rate buydowns, to attract buyers by making purchases more affordable.
This year’s improved backdrop helped new single-family home sales rise 9.6% in March from the prior month, according to data from the Commerce Department.
“Because inventory is very tight and remained very tight, it’s very easy to move from a fear of buying at the top to a fear of missing out,” said Stephen Kim, a home-building analyst at Evercore ISI.
Builders’ momentum could slow if the economy enters a recession or mortgage rates climb higher, analysts said. Tighter credit conditions could also make it difficult for builders to get loans. That is especially true for smaller builders that are more reliant on regional banks, many of which have been under stress. First Republic Bank became the second-largest bank to fail in U.S. history this week after regulators seized the bank and struck a deal to sell the bulk of its operations to JPMorgan Chase.
For now, builders are cashing in on home buyers who are tired of waiting for inventory to pick up. Matteson Rushing, who is 26, started looking to buy a home in December because her rent was too expensive. She wanted a three-bedroom home with a garage, and she struggled to find existing homes under her $315,000 budget that met her needs.
She ended up buying a newly built townhouse in Oakwood, Ga., for $299,900 in February. “I think it’s absolutely worth it,” she said. “I will never rent again.”
Comments