Builders Put Their Foot Off The Pedal Due To Inflation

Builders worry that demand for new homes may slow. As a result, they have taken their foot off the gas in terms of production, warning of many potential buyers being pushed out of the market by rising costs.

In June, the construction of single-family homes fell to the lowest level since April 2020, when the pandemic began, the Census Bureau said. 

In addition, it is said that housing permits, which are a measure of future housing activity, have also decreased.

The news follows a report earlier this week from John Burns Real Estate Consulting that showed builder sentiment suffered its second-worst monthly decline on record. 

Builders have expressed concern over a slowdown in shopping traffic, the report said. As a result, nearly a quarter of builders plan to cut prices to stimulate more interest in their homes.

“Homebuilders are becoming more cautious about the prospect of selling a single-family home,” said Lawrence Yun, chief economist for the National Association of Realtors. 

“There are frequent reports of newly built home buyers voiding their contracts because they signed early in construction when mortgage rates were low. But while construction takes longer to complete, today’s home requires financing at much higher mortgage rates.” “

Adding to the industry’s woes, new housing projects are facing significant delays due to supply chain disruptions. 

Yun said many of the homes that were started a few months ago have not yet been completed, adding that “homebuilders are waiting to see how these homes sell before new construction begins.”

The new home market is likely to face a bumpy ride as housing affordability declines. Only 10% of new homes sold under $300,000 in May; the median sales price in the same month was $449,000, census data show. 

In addition, the cost of building materials is rising, and lumber prices alone will add $14,345 to the average single-family home price by 2020, the National Association of Home Builders said. 

Mortgage payments have also nearly doubled over the past year, and monthly mortgage payments have increased 51% over that time, according to NAR data.

“The softening of single-family construction data should send a strong signal to the Federal Reserve that tighter financial conditions are creating a housing boom,” said NAHB Chief Economist Robert Dietz. 

“Price growth will slow significantly this year, but housing shortages relative to demographic demand will persist due to this ongoing cyclical downturn.”