Bad Time To Buy a Home
Good time to build homes.
I have been a fan of the homebuilders, which have been selling off recently due to the sudden recent falloff of enthusiasm for buying homes. I see this as mostly a matter of supply — the supply of existing homes, in the Red State places that people want to move to, has dried up. You have to build new homes to house all the new people moving to Texas, Florida, Utah, Arizona and the like. People have figured out that they don’t want to be involved in a bidding war for a limited number of existing residences. Or, for that matter, a bidding war for construction materials which have been impaired by supply-chain issues. (Many new houses are built with contracts signed before construction begins.) The National Association of Homebuilders said that the increase in lumber prices alone (now reversed) added about $36,000 to the construction cost of a new home — costs that were certainly not eaten by developers, but passed on to buyers, accounting for nearly all the increase in final selling prices. This does not include the increase in the cost of other materials, such as copper wiring and piping. In other words, I see the recent pullback not so much as a falloff of demand but as a lack of supply. You can’t buy a home that doesn’t exist, or build one from wood or steel that doesn’t exist.
Fortunately, however, these in-demand Red States are also not afraid to let builders build.
Here are some recent items from Wolf Street (wolfstreet.com) on the housing market.
June 23, 2021: Buyers’ Strike? Sales of “New Houses” Also Slump amid Surging Supply & Spiking Prices