A Homebuyer's Dilemma Might Be A Homebuilder's Delight
Sep 2, 2023
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Matt Argersinger, a financial expert, discusses the current situation of home sales, the opportunities for homebuilders, and the potential shift towards renting. Topics include low inventory, high mortgage rates, the role of home builders, wealth transfer, evaluating home builders, renting vs home ownership, investment potential in real estate, factors impacting the housing market, and the potential catalyst of a change in interest rates.
The low inventory in the housing market is driving up home prices and making it difficult for first-time homebuyers to enter the market.
Home builders are benefiting from the lack of existing home sales by constructing new homes and enjoying impressive margins.
Deep dives
Low inventory perpetuates high home prices
The low inventory in the housing market makes it highly unlikely for home prices to drop significantly. The limited supply of homes has been a long-standing issue for over a decade, and the current situation with mortgage rates above 7% further hinders first-time homebuyers. Despite expectations, home prices have held up due to the low inventory, making it challenging for prospective buyers.
Home builders filling the gap
While there is a lack of activity in existing home sales, home builders are stepping in to fill the gap. They are constructing new homes and finding opportunities to sell them. With limited inventory, home builders can offer financing options and discount inventory to meet demand. This has resulted in impressive gross and net margins for home builders, making it a perfect situation for them as they are essentially the only ones providing new homes.
Renting becomes more attractive
The cost-prohibitiveness of home buying, especially for young adults, is making renting a more attractive option. Factors such as remote work flexibility and a desire for mobility are contributing to a shifting mindset. Single-family rentals are particularly appealing as they offer larger spaces, yard access, and the absence of shared walls or ceilings. Single-family rental companies like Invitation Homes and American Homes for Rent provide a significant value proposition in terms of cost savings compared to buying a home. Rental communities and build-to-rent projects are also gaining traction, creating more options for renters in the future.
Existing home sales are down around 20% year over year for two reasons: mortgage rates are too high and there aren't enough homes for sale. Matt Argersinger and Deidre Woollard discuss: - The current situation of home sales and what could change it.
- Why homebuilders are in a good position right now.
- If renting will become permanent for more Americans and which companies might benefit. Host: Deidre Woollard