Demand for New Single-Family Homes Strong but Supply Short

May 02, 2023 from Floor Focus FloorDaily News

New York, NY, May 2, 2023 – “Home builders are enjoying stronger-than-expected business this spring, capitalizing on the recent fall in mortgage rates and the shortage of existing homes for sale,” reports the Wall Street Journal.

“Last year’s rapid rise in mortgage rates made home purchasing far more expensive for most buyers, slowing home sales and pressuring the home-building industry. Home builders pulled back on land acquisition and new construction.

“Now, new single-family home sales are bouncing back with supply tight in the existing-home market. Active listings in March stood at roughly half of where they were four years earlier, according to Realtor.com, in part because higher mortgage rates made many homeowners reluctant to sell and give up their current low rates.

“That low inventory has put home builders in a good spot. Newly built homes made up about one-third of single-family homes for sale in March, up from a historical norm of 10% to 20%.

“Home-builder stocks have surged since the start of the year. The S&P Homebuilders Select Industry stock index is up 17% so far this year as of Monday’s close, outpacing the S&P 500’s 8.6% gain. D.R. Horton, Lennar and PulteGroup, the three biggest U.S. builders by volume according to Builder Magazine, have posted year-to-date stock gains of 22%, 24% and 44%, respectively.

“D.R. Horton said last month that net sales orders for the quarter ended in March fell 5% from a year earlier, beating analysts’ expectations. These orders rose 73% from the prior quarter.

“‘The builders aren’t the only game in town, but they’re more the only game in town than they have been in a very long time,’ said Carl Reichardt, a home-building analyst at BTIG.

“Buyers are also more comfortable now that mortgage rates have come down from the 20-year highs they hit in the fall, when average rates topped 7%, executives said. The average rate for a 30-year fixed mortgage was 6.43% in the week ended April 27, according to Freddie Mac.

“‘The consumer has really adjusted to this new rate environment,” said Sheryl Palmer, chief executive of Scottsdale, Ariz.-based builder Taylor Morrison Home, on an earnings call last week. ‘They no longer believe that rates are going to return to 3% or 4%.’”