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Housing Market Hopes Hinge On Fed Pivot As Builder Sentiment Falls Again
Homebuilder sentiment in the US dropped a fourth month to the lowest since December, an update released on Thursday showed.
It's been a roller coaster for builders. Sentiment fell every month in 2022 as the Fed dialed up the most aggressive rate-hiking campaign in a generation and buyers struggled with an increasingly onerous affordability calculus.
Things turned around in 2023 when a dearth of resale inventory left new construction as the only option for anyone not priced out of the housing m
I was thinking the dearth of resale supply would be a boon to homebuilders, especially as housing prices have remained stubbornly high. Short of government-funded building, I don’t see how this gets resolved any time remotely soon.
I did see an op-ed in the Times suggesting that the Fed start buying mortgage-backed securities to bring mortgage rates back down and encourage some movement in existing housing, but it’s hard to know whether that would really do much to ease the shortage when the sellers still need to go somewhere. I suppose it might help builders a bit, but it’d still take time for builders to get projects off the ground.
Longer-term (i.e. in a decade or two), flat population growth and an aging baby boomer generation might start to free up some housing stock, but we may also see people flee places like Phoenix where a lot of new building has been happening leading to continued high demand in places that won’t be so dang hot. Very hard to imagine how housing gets better in the short or long term short of drastic government intervention akin to the investment in renewable energy and chip manufacturing.
Whose hopes, is the wrinkle. Sellers are perfectly happy with constrained supply, and the large builders don’t mind it too much either. Buyers and brokers – and inflation watchers – feel the opposite. Institutional investor buyers (the big SFR fleets) have reportedly backed way off. Which is interesting, because they should have the lowest cost of capital.
Homebuilder stocks, and building material stocks, currently seem unconcerned about weak builder sentiment. Investors probably think the relationship is rates –> sentiment –> starts –> sales.