Homebuilders say they’re on the edge of a steeper downturn as buyers pull back

by | Oct 31, 2022 | Business

A worker drills plywood on a single family home under construction in Lehi, Utah, on Friday, Jan. 7, 2022.George Frey | Bloomberg | Getty ImagesThe once-hot housing market is cooling off at an alarming rate, and some homebuilders say it will only get worse come the new year as new orders dry up.Fast-rising mortgage rates have caused once-frenzied homebuyers to turn on their heels and become worried about their potential investment and the health of the overall economy.”There’s this cliff that’s happening in January,” said Gene Myers, CEO of Thrive Homebuilders in the Denver area, which was one of the hottest markets in the years leading up to and through the coronavirus pandemic.U.S. homebuilders were a major beneficiary of the Covid economy. Record low interest rates, combined with surging demand from consumers looking for more living space, caused a run on housing unlike most had ever seen before. Home prices surged over 40% in just two years, and homebuilders couldn’t meet the orders fast enough. They even slowed sales just to keep pace. All of that is over.Housing starts for single-family homes dropped nearly 19% year over year in September, according to the U.S. Census. Building permits, which are an indicator of future construction, fell 17%. PulteGroup, one of the nation’s largest homebuilders, reported its cancelation rate jumped from 15% in the second quarter of this year to 24% in the third.The public homebuilders that have reported earnings so far showed surprisingly strong results, but that is because much of it is based on a backlog of homes that went under contract last spring. That was before mortgage rates crossed 6% and then 7%.Now builders are preparing for what’s coming next. Myers said that his company’s balance sheet is incredibly strong right now, thanks to a backlog of homes sold at high prices, but he predicted that the market will be “ugly” by the start of next year.  “It is definitely a hard landing for housing,” he said. “Any hope of a soft landing really evaporated last spring, when it became so clear that our customers who are accustomed to such low mortgage rates just were going to go on strike.”Myers was around during the last housing crash, which was brought on by a faulty mortgage market where j …

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