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NEWSLETTER

November 9th, 2023

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This week we discussing the 2023 Q4 Housing market and breaking down whats going on!

The construction market had been experiencing significant strength and growth leading up to 2022 - 2023. With low interest rates, a strong economy, and high demand for housing, the industry was thriving. New construction projects were on the rise, and existing homes were selling quickly. However, the the hangover effect with the outbreak of the COVID-19 pandemic in early 2020 through 2021 brought about unexpected changes in the housing market. As people were forced to spend more time at home due to lockdowns and remote work arrangements, the importance of having a comfortable and functional living space became paramount. This shift in priorities led to an increased demand for housing, particularly in suburban areas and smaller towns, as people sought more space and a change of scenery. As a result, the housing market experienced an upward motion, with rising home prices and a surge in home sales. Additionally, the pandemic prompted many homeowners to invest in home renovations and improvements, further boosting the construction industry. Despite the challenges posed by COVID-19, the housing market proved resilient and adapted to the changing needs and preferences of buyers, ultimately contributing to the overall strength of the construction market. This shows the truest strength of our industry. We figure out a way to keep moving forward and building America. With that said I have heard from many people with years of experience as builders, investors and suppliers this new situation we find our selves reminds them of the 1980’s.

In the 1980s, the construction market experienced significant fluctuations due to various factors, including interest rates. High interest rates during this period had a profound impact on builders, investors, and homeowners alike. The rising interest rates made borrowing more expensive, which increased the cost of construction projects and reduced the affordability of homes for potential buyers. Builders faced challenges in securing financing for their projects, leading to a slowdown in construction activity. Investors also faced difficulties as higher interest rates reduced the profitability of real estate investments. Additionally, homeowners who had variable-rate mortgages or were looking to refinance their homes faced higher monthly payments, making it harder for them to afford their homes. Overall, the construction market in the 1980s was heavily influenced by interest rates, causing challenges for builders, investors, and homeowners alike.

The current high interest rates are having a significant impact on the housing market, creating a gloomy future if they continue until 2024. With interest rates on the rise, borrowing costs for potential homebuyers are increasing, making it more difficult for them to afford a mortgage. This has led to a slowdown in the housing market, as fewer people are able to enter the market or qualify for loans. Additionally, existing homeowners who may have been considering selling their homes are now hesitant to do so, as they would have to face higher interest rates if they were to buy a new property. This lack of supply further exacerbates the issue, driving up home prices and making it even more unaffordable for potential buyers. If interest rates remain high until 2024, it is likely that the housing market will continue to struggle, with limited activity and stagnant growth. As we have to recall with 2008 where housing saw a nationwide 37% drop in prices from 08-10.

The 2008 housing crash had a significant nationwide effect on prices. It was triggered by the bursting of the housing bubble, which was fueled by a combination of factors such as loose lending practices, subprime mortgages, and speculative investments. As the bubble burst, housing prices plummeted, leading to a wave of foreclosures and a sharp decline in the value of homes across the country. This had a domino effect on the economy, as the housing market is closely tied to various sectors such as construction, banking, and consumer spending. The crash resulted in a severe recession, with millions of people losing their homes, jobs, and savings. It took several years for the housing market to recover, and the effects of the crash were felt for a long time, highlighting the importance of responsible lending practices and regulations in the housing industry.

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During the period of 2020-2022, new homeowners have been observed to put less money down on homes compared to the years 2006-2008, which marked the last housing market crash. This trend can be attributed to several factors. Firstly, the availability of low down payment mortgage options has increased in recent years, allowing buyers to secure a home with a smaller upfront investment. Additionally, the rising cost of housing in many markets has made it more challenging for buyers to accumulate a substantial down payment. Economic uncertainties and tighter lending standards following the previous housing crisis may have also influenced buyers to be more cautious and opt for smaller down payments. However, it is important to note that a lower down payment can increase the risk for both buyers and lenders, as it may result in higher loan-to-value ratios and potentially impact the overall stability of the housing market. The tough question many of these young home owener’s will be facing is to give back the keys and go through a bankruptcy or hold on to a house that is a couple of hundred thousand dollars upside down. One hopes as long as the economy doesn’t turn to sharply these young families can pull through too brighter days!

In addition to interest rates, there are several other factors that can significantly impact the housing market. One such factor is the wealth effect, which refers to the impact of changes in individuals' wealth on their spending behavior. When people feel wealthier due to factors like rising stock prices or increasing home values, they tend to spend more, including on housing. Conversely, when wealth declines, individuals may reduce their spending, leading to a slowdown in the housing market. This effect has been particularly evident in recent years, as the growing wealth inequality in the United States has left many Americans with limited resources to invest in housing. As a result, the demand for housing has been dampened, leading to slower growth in the housing market.

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Another wonderful factor is approaching the housing market. Homeowners with low interest rates are often reluctant to sell their homes and give up their advantageous rates for a higher one. This is primarily because low interest rates provide them with significant financial benefits. With a low interest rate, homeowners can enjoy lower monthly mortgage payments, which can free up more disposable income for other expenses or savings. Additionally, a low interest rate allows homeowners to build equity in their homes at a faster pace, as a larger portion of their monthly payments goes towards the principal balance. This can be particularly appealing for homeowners who have long-term plans to stay in their current homes. Moreover, refinancing to a higher interest rate would mean paying more in interest over the life of the loan, which can be a deterrent for homeowners who are looking to maximize their savings. Overall, the combination of lower monthly payments, faster equity accumulation, and potential long-term savings make homeowners with low interest rates hesitant to sell and give up their advantageous rates for a new home.

The housing markets on the West Coast and in the southern Americas, including states like California, Texas, Idaho, and Arizona, are experiencing a more rapid and early crash compared to other regions. Factors contributing to this trend may include overinflated prices, speculative investments, and a higher concentration of industries affected by economic downturns. On the other hand, the housing markets in the northeastern states such as New York, Massachusetts, and Illinois seem to be holding up better. This could be attributed to factors like a more diverse economy, stronger job markets, and stricter regulations that prevent excessive speculation and price inflation. Another factor could be the lack of land and ability to develop there? Another thought is that less Wall Street landlords like Blackrock an Open door will be selling off homes at losses and have already stoped new purchases in curtain areas.

The rise of remote work has led to a significant number of people moving out of cities and into smaller towns and suburbs. As more individuals have the flexibility to work from anywhere, they are seeking out more affordable and spacious living options outside of crowded urban areas. This influx of remote workers into smaller cities has caused a surge in demand for housing, subsequently driving up prices in these areas. The increased competition for homes in suburbs and smaller towns has resulted in a seller's market, with limited supply and rising costs. This trend has presented challenges for local residents who may be priced out of their own communities, while also bringing economic opportunities and growth to these smaller cities. So what could happen if it ended? The return to office work could potentially have an impact on the housing market. As employees start going back to their physical workplaces, there may be a shift in housing preferences. Some individuals who had moved to suburban or rural areas during the pandemic to take advantage of remote work opportunities may now choose to relocate closer to their offices. This could lead to increased demand for housing in urban areas and potentially drive up prices. On the other hand, those who have grown accustomed to remote work may continue to seek housing options outside of major cities, leading to a sustained demand for suburban or rural properties. Ultimately, the extent of the impact on the housing market will depend on the balance between individuals returning to office work and those opting for remote or hybrid work arrangements. Only time will tell the true impact Covid-19 had on the housing market and the whole work force of the America.

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See you next week when we will dive into what would happen in the USA if mortgage rates dropped to 3% in are current market.