The U.S. supply of new homes relative to sales in June was the highest since the middle of the last crash in 2010. In early July, buyer traffic to homebuilder websites and sales offices had plunged to the lowest level for the month since 2012, according to a survey of builder sentiment from the National Association of Home Builders.
Here’s the problem: a pandemic housing boom led builders to start construction because the market had too little inventory. In June, 824,000 single-family homes were under construction in the United States, more than at any time since October 2006, according to an NAHB analysis.
Now those home builders are having trouble selling those homes as construction is completed because higher interest rates from the Federal Reserve have pushed up mortgage rates. The combination of higher mortgage rates and the higher prices that prevailed during the shortage and boom has led to an affordability problem that has sent hundreds of thousands of potential buyers to the sidelines.
Looking a little further down the road, economists see a potential problem as builders, facing the current surplus, pull back. A decade of underbuilding and a bulging population of young people aging into homeownership would prolong the affordability squeeze.
“Despite the fact that there aren’t enough housing units in the country, builders are not willing to take the gamble that’s required to build them,” said Jerry Howard, chief executive officer of the National Associaton of Home Builders told Bloomberg. “They’re afraid that, in a recessionary environment, they won’t be able to sell them.”
Today, August 9, at the close, shares of home builder Lennar (LEN) were down 3.31%. D.R. Horton (DHI) was off 3.13%. KB Home (KBH) was lower by 3.25%. Toll Brothers (TOL) had dropped 3.41%.
