The Bull Market is Becoming a Real Bear

“Limited inventory”. “Rising interest rates”. “Barbell of imbalance”. Many homebuyers and real estate professionals alike are finding themselves challenged by the law of scarcity in today’s market. Simply put, there are more buyers than there are homes to fill. Anyone in the home building and buying world is intimately aware of the impact presented to us with this unique situation. There are several factors creating this imbalance.

First-time homebuyers who are starting families and move down buyers who are looking to downsize have put a strain on the inventory availability. The need for each group is similar, the wants may differ, but the need can be met with access to more inventory of affordable homes. With the average sales price of homes increasing exponentially, the opportunities for these buyers is continually diminished. Add in the threat that homes will now cost more because of rising interest rates, and a crisis is created. Interest rates are not currently creating a deferral impact upon buying trends, however, as the prices continue to rise, it prices many families out of the market entirely.

What does this all mean? To put it bluntly, the market needs more homes for the fixed income and average income buyers. Meeting these buyers needs starts at a price point and includes flexible options. Fixed income buyers who are downsizing tend to fall into the group of sellers that are cashing in on the equity increases in their current homes. They may be retiring or reducing their workload, pushing them toward fixed income levels. However, first-time homebuyers have a different hurdle. These apartment and rental home buyers need better programs in place to help them get out of the rental trap. With the increased need for rentals came the increased cost of renting. Many of the options available for renters taps out their income which reduces the chances that they can save money for a down payment. A good rental history shows they can afford the home, but they don’t have the income set aside for a 20% down payment. Does your company offer incentives to first-time homebuyers? What can your trusted lenders do to help them?

Although it is a challenge for the buyers, it is a positive for sellers and builders who are looking to gain a profit after a long stretch of being at a standstill. This opportunity for growth for builders is understandably a cautious undertaking. Willingness to work with these buyers can be rewarding to builders but it is wise to take precautions to avoid the pitfalls of the past. Ensuring that you work with other professionals who are licensed properly and that you are providing a high quality, warranted homes will set you as a builder apart from the crowd. Many lenders are now requesting that a 10-year structural warranty is in place when the buyer is using FHA/VA and USDA financing. As a member in good standing with RWC, you are in a position to meet this requirement and can meet the buyers lending needs.

In conclusion, home buying needs and demands are at the crossroads between availability and affordability. Somewhere in the middle is exactly where builders should strive to be to reap the rewards. As a tradeoff, qualified buyers are willing to settle for higher interest rates if given the opportunity to achieve the long-term goal of homeownership. Scarcity is real, but buyers are abundant.