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Economics

Is there currently a housing bust for home builders?

Contracts are cancelling left and right, and with cost of goods rising, home builders are in a huge pickle, or is it a housing bust?

home being built representing homebuilders in a housing marketing bust

It’s no secret that we’re in the midst of a nationwide housing dilemma. With homeowners struggling to sell houses and having to reduce their prices, the Fed hiking mortgage rates, and inflation, we’re in a predicament. Often overlooked, however, home builders are bearing the brunt of the housing crisis. If homebuilders can’t sell their inventory, who will buy it? 

Cancellation rates of signed contracts are through the roof right now, making it incredibly difficult for homebuilders to wipe their hands clean of homes. Who’s going to buy the houses? Some suggest rental operations, despite that being really hard to pull off because they’re backing out just as much as homebuyers. Prices are simply too high and financing is way too much of a costly investment right now. 

Sales to rental investors have plummeted to 32% in just a year, so homebuilders are in a pickle. Across the industry, companies are having to take a step back while they wait for this to sort itself out. In recent months, homebuilders have pitched tens of thousands of new houses to rental operators. Many of these houses originally belonged to buyers who backed out of their contracts. It comes as no surprise to see that cancellations of contracts among buyers is also seeing a huge spike. Cancellation rates soared to 26% in October alone. 

A big issue is rental operators not wanting to pay peak prices for homes right now, though they may consider large discounts, which isn’t pleasant for builders. Eventually, though, builders may be desperate enough to offer steep discounts, further hurting the business. Homebuilders are on a slippery slope and are up against a lot compared to recent years. Builders are undoubtedly essential to the collective health of the housing sector and their struggles mark the beginning of a chain reaction that isn’t good for anyone. 

NAR Chief Economist, Dr. Lawrence Yun, spoke on the housing issue in October, noting that persistent inflation has been incredibly harmful to the market. For many years, Yun has suggested the idea of housing starts (what new home builders do) to help stabilize the insane market, without avail. There’s no current relief and we remain in the tough position we’ve been in for months.

Macie LaCau is a passionate writer, herbal educator, and dog enthusiast. She spends most of her time overthinking and watering her tiny tomatoes.

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