Homebuilders still need lower mortgage rates

By Logan Mohtashami | HousingWire

What is happening with homebuilders and the new home sales sector as we head into the spring housing market? We have had some conflicting data points recently. On the one hand, cancelation rates have been rising. On the other hand, mortgage rates have gone down more than 1% since Oct. 20, 2022. The builders’ stock prices have done well as mortgage rates have fallen, and this illustrates the simplicity of the homebuilders’ position: their story is really about mortgage rates and moving products.The builders sell homes as if they were a commodity: they build and sell to make the most money possible and move on. The builders don’t like to see supply of existing homes growing for fear that their buyers might cancel on them. The growth of supply means demand is getting weaker, which will require builders to give more incentives to buyers. 

Now, they want to ensure that the buyers who are still qualified are still there to close the deal when homes are ready to move into. This makes them much more efficient sellers than existing homeowners, who need to find another house once they sell. The builders don’t have that problem — they just want to get homes off their books as soon as possible. 

So, as the 10-year yield has fallen along with mortgage rates, investors are anticipating the builders can sell more of their products once they’re ready to be moved into. This is the biggest reason why homebuilder stocks have done so well recently.


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January 2023