Rising mortgage rates and prices not raining on homebuilders’ parade
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We’re entering a third year of pandemic economics, and it’s shaping up to be a year of changing economic conditions as well.
One sector that’s sure to be impacted is housing. With the Fed signaling it’s going to raise interest rates to fight inflation, mortgage rates are already rising. That, along with persistent challenges sourcing building materials and labor, is likely to keep the supply of new homes tight, and prices high, in the coming year.
Even though the price of construction materials was up nearly 20% in the past year, homebuilders remain very optimistic, according to the latest survey.
One reason, said analyst Ken Leon at CFRA, is the eagerness of would-be homebuyers, with jobs plentiful and incomes rising.
“We’re seeing strong demand across the board, whether it’s entry-level, move-up or luxury. One of the frustrations in affordability is the crowding out of new homebuyers and millennials, coming from investors that are putting cash-down,” he said.
Rising mortgage rates will hurt affordability even more. Another thing that’s changing: the geography of new construction. Robert Dietz at the National Association of Home Builders said early in the pandemic, everyone wanted to move to the outer suburbs and beyond.
But lately, “we saw demand return in the inner-suburb-type environments, and even in the urban cores,” he said. That feeds a boom in apartment – and townhouse – construction.
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