As Housing Market Cools, Builders Find Themselves in Hot Water

During the pandemic, with interest rates at record lows and people spending more time at home, buyer demand surged. In the last two years, home prices increased by more than 40% and builders couldn’t keep up with demand. But now buyers are starting to step back and fewer homeowners are putting their homes on the market. According to CNBC, some builders continue to report strong earnings, but that is largely due to contracts signed last spring when builders had to put some projects on hold. Now mortgage rates have increased to 6%-7% and builders face a more challenging outlook as 2023 approaches.

Housing starts for single-family homes dropped nearly 19% year over year in September, according to the U.S. Census. Building permits, which are an indicator of future construction, fell 17%. PulteGroup, one of the nation’s largest homebuilders, reported its cancellation rate jumped from 15% in the second quarter of this year to 24% in the third.

Now builders are preparing for what’s coming next. Gene Myers, CEO of Thrive Homebuilders, said that his company’s balance sheet is incredibly strong right now, thanks to a backlog of homes sold at high prices, but he predicted that the market will be “ugly” by the start of next year.

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