The housing industry in this country is in a very tricky spot right. We are seeing migrations out of some very highly populated states into other states that do not have nearly enough homes to satisfy the demand. This has created a huge housing shortage at a bit of an inopportune time. Normally, builders would be feasting on the demand, however, higher interest rates and supply chain issues have thrown a wrench into the system.
Even so, many custom home builders remain very optimistic about the future of the industry in the upcoming year.
Driving Rates
November 2022 was a bit of a wakeup call for the housing industry. The Fed had hammered the interest rate to try to quell inflation, using four successive 75-point increases, driving mortgage rates up over seven percent. Builder confidence declined for 11 consecutive months, and the housing market was faced nationally with an estimated housing shortage of more than five million homes.
NAHB 2022 chairman and owner of Georgia–based Konter Quality Homes Jerry Konter officially declared a housing recession. He demanded that the federal government address the market with “policies that lower the cost of building and allow the nation’s home builders to expand housing production.”
Marc Russo, co-founder and CEO of Mercer Island, Washington–based JayMarc Homes, stated, “Home buying actually decelerated much faster in 2022 when compared with those 2008 and 2009 markets. It was like the pandemic in that it was one of those once-in-100-year events. We didn’t even see interest hikes like this in 1980. As a result, we slowed our starts and closed on about a dozen homes last year and deliver about a dozen homes this year, reducing our exposure to market by half. At this stage of the cycle the goal is not necessarily how much profit can be gained, it’s how to keep the lights on and employees employed.”
Cancelations were a big problem for the industry in 2022, and although custom built homes will not be at the level if they were prior to the recession, the market is starting to tick back up as we see some of the inhibiting factors start to work their way back to what we would consider to be normal levels.
Doug Bauer, CEO of Incline Village, Nevada–based Tri Pointe Homes, stated, “2023 is looking like it may be a tough year for the housing industry, but taking a step back and looking at specific economic factors may help put things into perspective.
“Unemployment remains low, and there is still a housing deficit that has fallen short of meeting household formations since 2009. Homeowners with low mortgage rates will probably not move, so buyers are more likely to purchase from new-home builders rather than purchasing a resale home. Income levels are strong, so once rates settle and demand picks up, builders like Tri Pointe will look to adjust pricing to payment and consumers should reengage.”
Patience seems to be the key right now, so while we would recommend being cautious, there are still going to be some great opportunities for those that still want to have a custom home built in 2023.