Homebuilders still glum with rates still high
The state of the housing construction industry became clearer this week, with data showing that builders’ confidence in the market for new single-family homes ticked down last month, continuing a trend going back to April.
That’s according to a survey from the National Association of Home Builders and Wells Fargo. Additionally, the U.S. Commerce Department is expected to release a new batch of numbers on housing starts and building permits Wednesday.
As a reminder, there’s still a major shortage of housing in many parts of the country. But that hasn’t always meant we’re building a lot more of it.
Homebuilders don’t have the wind at their backs right now, according to Kathryn Thompson, CEO of Thompson Research Group. “I think, decidedly, everyone is in the doldrums,” Thompson said.
Thompson added that the housing market is still held back by elevated mortgage rates. Owners, by and large, don’t want to sell and give up the low rates on their current mortgages. Which means they’re not looking for something new.
So, builders and their suppliers are “just kind of on the sidelines waiting,” Thompson said.
The sidelines are where George Arroyo runs Arroyo Custom Homes in Raleigh, North Carolina. “I refuse to jump in because of the uncertainty,” Arroyo said.
He added that his building business is in a holding pattern. Just like new mortgages, construction loans also have higher interest rates right now. Arroyo said it’s too risky for him to take one out, leading him to focus on other endeavors.
“I’m not a gambler, right? So, I’m just not going to play,” Arroyo said. “I find that remodeling right now is a more stable and viable business.”
But looking ahead a few months, the environment for homebuilding may get a bit better, said CEO Jim Tobin of the National Association of Home Builders.
“I would say it’s cautious optimism,” Tobin said.
Tobin said builders, like many of us, are keeping a close eye on the Federal Reserve. We may see one, if not two, rate cuts in the back half of this year, which would be welcome news for builders, Tobin said.
“Lending rates for construction loans are also going to fall, and that’s obviously the lifeblood of the industry to start new projects,” Tobin said.
A stronger market for new homes could then boost related industries, like the renovations Arroyo does.
Thompson said when current homeowners finally decide to upgrade, “they would sell their existing home, which drives repair and remodel.” That’s because those sellers might opt for a flashy new paint job and landscaping or decide to shore up that leaky roof.
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