Excargodog

It will definitely reduce the price of EXISTING houses. New houses? Maybe not. Inflation is affecting their labor and material costs as well.

TransWorld

Have you seen lumber and Sheetrock prices drop? They have. Availability of construction labor, as demand eases, will become more in balance. New house prices will have a downward pressure on them to become more competitive with existing homes. Otherwise, they will dry up, and a shortage of existing houses will drive up existing housing prices. These equilibrate and the overall downward prices of both existing and new houses will occur.

With 6% mortgage rates, double the 3% where they were a few months ago, they have slammed on the brakes for buying existing and building new houses.

I was talking with one of the loan officers at my bank today. (Major, well known bank.) She said that is exactly what they are seeing and forecasting.

The flaw in your logic is that costs + desired profits = sales price. Not correct. If they want to build, the prices have to be competitive with the existing housing markets. Their profits have bulged. Now they will shrink.

panpanpan

I think what is more likely is that their profit margins were more or less the same as costs/prices went up. And now that demand is falling they won’t be able to build houses cheap enough to make a profit, and will stop building altogether. That is why home starts are permits are declining.

TransWorld

The officer at the bank yesterday said the reason was consumers were “pulling back their horns”. When interest rates go from 3% to 6% as they have in the past year, the mortgage payments have almost doubled. That is why home start remits are declining. Do I believe her or do I believe you?

Excargodog

Neither reason necessarily excludes the other. Potayto, Potahto.

TransWorld

I respectfully disagree with you. What I indicated is the predominating reason, per people in the business. They did not indicate your reason predominated.

panpanpan

I’m not saying that rates doubling didn’t cut demand. It obviously has. What I am saying is that home builders costs went way up with inflation, which is why the prices of new homes surged. Just because prices went way up does not mean their profits exploded, because the costs went way up too. Now that demand is cooling, while inflation/costs remain high, the profits margins are not great enough to warrant building new homes. That is why housing starts have declined.

I’m not sure why you are saying I am incorrect. This is another aspect of it.

Excargodog

Neither the fact of your disagreement nor your appeal to alleged authority (per people in the business) change reality.

Andy

Home replacement costs will keep home prices from falling much. New home construction will also drop off quite a bit.
Of course, it's location, location, location. I live in a very low tax state with lower than average housing costs (in spite of 20+% increase in the last year and previous years also increased considerably). The high tax state people are flocking here.
And while mortgage rates sound high at 6.5%, that's still below the current inflation rate.

Excargodog