New homebuyers and higher density will weather the storm.
Higher mortgage rates are the new reality for the home-building industry. With rates expected to exceed 8% and existing home buyers holding on to their existing fixed mortgage rates, the high-end home market is anticipated to suffer lower demand.
“Rising interest rates, inflation, a tepid stock market, and economic uncertainty are causing the luxury buyers to back off,” Redfin said
The reality for many luxury home buyers is that their budget may have been cut in half, and with bonds paying interest rates of 4%, many are asking why they should take the risk on a high-priced home and looking for more affordable options.
With the luxury home market stalling, home builders’ focus is shifting to first-time buyers. The more affordable home market is impacted by all the same forces but the lower price and moving people out of rentals and not out of low-interest loans are reasons that first-time home owner are expected to still be in the market to buy.
Home builders have already adjusted their focus to meet the reality of this new market. In Vander Ranch, Greenwood (Midland County) Texas, DR Horton was ahead of the game and has launched its DR Horton Express home. With a $292,000 starting price, they are poised to meet this changing market.
Local builders can also take advantage of these higher density, lower lot costs developments, and with the falling price of construction materials complete for first-time buyers. With other buyers appearing to be staying in their existing homes and enjoying having locked their low rates, it may be the only path to weather this housing market.
“There are still a few finished lots left in Vander Ranch with attractive terms that can help local builders meet the market of first-time home buyers,” said Jason Bethke, CEO Paleo Land Company (Jason.Bethke@permian-water.com).
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