Resources: Housing Trend Charts

A Note of Caution for Home Builders

By: Charles C. Shinn Jr., PhD
President, Builder Partnerships

Original Article Appeared in Pro Builder

2024 is an election year with the probability of a change in the White House. The current administration will work to make sure the economic numbers look good, including pressure on Fed Chairman Jerome Powell and the FOMC to more quickly and deeply reduce the funds rate to stimulate the economy, even if inflationary pressures are still present. In my opinion, the chances of false signs of economic strength are highly probable.

The LEI has been declining for 23 straight months, signaling a potential recession. Retail sales, manufacturing production, and residential construction were weaker than expected in January 2024. Consumers are still spending like drunken sailors, especially on services, building up their consumer credit card debt. Fifteen industries in the service category have reported increases in prices paid during January.

Also in January, housing starts dropped by 14.8%, with single-family and multifamily starts declining 4.7% and 35.8% respectively. As of mid-February, the Freddie Mac rate for a 30-year fixed rate mortgage increased to 6.77%, while The Mortgage Bankers Association reported a 6.87% rate and Mortgage News Daily’s national rate was 7.14%. These increased rates will likely have an impact on first-quarter sales.

The current economic environment feels very similar to the long lead up to the 2008 recession, so be cautious this year! Scrutinize the national economic headline news coming out of Washington to make sure you're seeing the same trends in your local communities.

Home builders have turned to building more speculative homes for rapid-delivery programs with the shortage of existing-home inventory. Builders should monitor their level of spec inventory, establishing maximum limits by community.

When the market softens, spec very quickly becomes finished inventory. Don’t get caught. There are too many cautionary flags. Stay diligent and minimize your potential exposure to a rapid change in the economy, especially after the election.

Data Updated: May 31, 2024
(April 2024 Data)

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