The homebuilding market has been hot for so long, many have assumed a cool down was coming. Well, now, it seems we are beginning to head into that direction. Home sales dropped significantly in May and demand is likely to remain slow in the coming months, as one forecast suggests demand for new homes may be dropping for more builders than at any time in the previous four years.
The BTIG/HomeSphere survey shows only 19% of builders indicated they experienced a year-over-year increase in sales in May, which is the poorest reading in the survey’s 56-month history. This leaves 53% of builders who reported a year-over-year decline—and 28% who reported an approximately flat difference.
Carl Reichardt, managing director, equity research, BTIG, says the biggest takeaway here is that traffic and sales for a larger number of builders appeared to slow in May 2022 compared to May last year and April 2022, and that the number of builders raising prices is shrinking, while the number of builders offering increased sales incentives is rising, although in both cases, modestly.
The cause is likely due to both higher rates and higher home prices, as well as negative consumer psychology about real estate values, and the economy.
In all of this, as we like to say here at Constructech, technology can help—and Reichardt has an interesting perspective on how technology factors in here.
“We believe in general that the speed with which consumers receive information on housing market conditions today compared to pre-internet days probably results in faster action by them if they believe demand conditions are changing, either positively or negatively,” he explains.
The good news is cancellation rates have not increased materially so far, at least for now. Reichardt suggests customers currently in backlog appear to be proceeding with their planned home purchases fairly regularly, rather than cancelling them due to either a change in financial circumstances (lost job), inability to afford the unit (due to now-higher mortgage rates, or higher costs for other goods that make their new home payment unaffordable), or fear (concern about their financial future or the value of the home they plan to buy).
Looking to the future, he says for the new housing market overall, he believes sales in units drop 11% overall this year nationally and are down slightly in 2023 as well.
“A significant change in interest rates—either sharply higher or lower from here—could hurt or help these projections,” he says. “We anticipate builders will be likely to boost sales incentives and/or reduce prices in 2023 to help make homes more affordable. If the U.S. enters recession over the next 12-18 months, it is possible demand could drop by more than we anticipate as well.”
What has your experience been in 2022? Is the market still heating up or is it cooling down? Perhaps, more importantly, what is your construction company doing to prepare for what comes next?
Want to tweet about this article? Use hashtags #construction #IoT #sustainability #AI #5G #cloud #edge #futureofwork #infrastructure