Home Builders Adjusting Prices: What This Means for Buyers and the Market

Introduction

• Discussion on the favorable position of homebuilders and developers in the housing market over the past 2-3 years.
• Anticipation of a drop in interest rates in the coming months and its potential negative impact on builders.

Current Mortgage Rate Scenario

• Existing homeowners with mortgage rates around 2-4% are reluctant to sell.
• New mortgage rates are significantly higher (7-8%), creating a disincentive for homeowners to move.

Effects on Housing Inventory

• Scarcity of homes for sale due to reluctance to sell existing properties.
• Resulting bidding wars on available homes, leading buyers to consider new construction as the only option.

Potential Changes with Lower Interest Rates

• Expected drop in interest rates to around 5-5.8%.
• The reduced difference in mortgage rates (e.g., from 3.8% to 5.8%) may encourage more homeowners to sell.
• Increased resale inventory could provide buyers with more options beyond new construction.

Market Trends for Builders

• Builders may face decreased demand for new homes as resale options increase.
• Observations of price reductions on new homes, a trend not seen in the past 36 months.
• Significant price cuts reported for newly constructed homes listed earlier in the year (e.g., reductions of $8,000 to $15,000).

Implications for Buyers and Sellers

• More options and potentially lower prices for buyers in the market.
• Current homeowners looking to sell may benefit from increased buyer activity due to lower interest rates.
• Potential negative effects on home sellers and mortgage companies.

Engagement with Listeners

• Encouragement for listeners to share their experiences and strategies regarding home buying or selling in the current market.
• Invitation to reach out with questions or comments.

Consultation Services

• Promotion of live, one-on-one consultations available through Actual Human, covering various topics including real estate and mortgage options.

Conclusion

• Appreciation for listeners and reminder to utilize consultation services for personalized advice.

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We've talked quite a bit on this channel about how homebuilders and developers have really been in a good privileged position in the housing market over the last two or three years, and the fact that interest rates are going to drop a little bit here in the next few months might change that. It might change it for the worst for builders, and here's the reason why: up until recently, the difference between existing mortgage rates that people had on their current mortgages on their homes were 2 or 3%, maybe 4%, that people borrowed money five, six, seven years ago and got very low rates. The new rates were 7-8%. So anybody with an existing house didn't want to sell it because they would have to give up their old mortgage. You don't get to keep your mortgage rate on your new house; you have to get a new mortgage. So if you're sitting in a house with a 3% mortgage or a 3.2% mortgage and to buy a new house you have to pay 8%, you're not going to do it. You're just going to keep your old house, even if you hate it.

What that did was have the effect of not letting a lot of new inventory come onto the marketplace. Homes for sale were very scarce, and there were bidding wars on homes. Anytime somebody decided to sell a house, everybody wanted it. So the only alternative for a lot of buyers was looking at new construction, looking at houses that builders were putting in subdivisions. So builders loved it because they were the only game in town. Well, now, if interest rates drop a little bit, they may drop into, let's say, into the fives. Maybe not 5%, but maybe like 5.8% or 5.5%. Well, now, if you have somebody that has a mortgage rate of like 3.8% or 4%, you're only a point and a half difference between the two.

So it's not going to be that big of a jump to go from one house to another. More homes will come onto the market in the resale inventory that will give home buyers some alternatives to buying a new construction home. Sure, builders are going to still sell their new houses, but they may not have the same demand level as they did before, or if they did, there might be some pricing concessions. We've already seen some home builders having price reductions—price cuts on new homes—that were unheard of for the last 36 months.

We've been monitoring the real estate market. There are many homes that are brand new construction that were put for sale in May or June of this year, and now it's August, and they're dropping the prices: 8,000, 10,000, 15,000 price reductions on houses. Price cuts—this is a sign that builders are seeing the writing on the wall that maybe their position isn't as great. It's good for buyers because you have more options, and the options you have are probably going to be a little bit cheaper.

If you are a current homeowner that wants to sell your house, it still could be okay because the interest rates being lower will have more buyers out in the marketplace. So it's kind of a win-win for consumers. The losers are going to be the home sellers and maybe the mortgage companies that don't get as much return on their investment. If you're looking for a house or you're looking to sell your house, put a message below and let us know what has been your experience over the last few years in your decision-making, your thought process, and your strategy for either staying in the house you have or looking at a new home.

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