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Don’t Forget! You Saw it in the
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July 2022 #14276 Page #28
Capital Investments are Not Going to Be Enough When the Party is Over Todd Drummond
T
he article I published in April, Record CM Building Industry Net Profits are Coming to an End Sooner Than Most Believe, predicted that the construction industry would start seeing negative market changes around August of this year. Wow, was I right about calling that one? The continued expansion of construction capacity (greater supply) and the reduced growth rate (less demand) in the housing market are starting to hit many regions of the country. If it hasn’t already, your company’s market should also experience the changes by the end of the summer. Still don’t believe me? Let’s consider these additional facts.
The interest rate hikes and overall inflation immediately slowed the home buying markets. The average mortgage rate at the beginning of the year was less than 3%, so a $500k loan for 30 years meant a monthly payment of about $2,600 with estimated property tax and insurance. Today’s interest rate is now about 6%, which would make that same loan payment $3,500. In other words, that extra $900 per month is an increase of about 35% – which doesn’t even include the additional cost of living increases for all the other things a family needs, such as food and gas. According to Richard Moss, a Platinum award-winning REMAX agent recognized as one of the top 1% of realtors in Las Vegas, NV: “Homes are falling out of contract because of the rate hikes. The typical building time for a new home in Las Vegas is about 13 to 16 months, from contract to keys. The lenders can only lock an interest rate for three months, so one example was the home buyer signing the sales contract with an expected payment of $3,600 per month. After the rate adjustments, the payment was $5,700 per month. The buyer could no longer qualify because of debt-to-income ratios. The home builder returned the earnest money but kept the deposits on upgrades. The builder then placed the home on the market and is negatively affected by carrying costs. The buyer is now without the property and the $36,000 he lost in upgrade deposits. Another thing realtors are witnessing is that new home builders did not offer agents any commission to bring new clients during the red hot market, but now that has completely changed. New home builders are offering standard commissions. It is not hard to understand when mortgage applications are suddenly at a 22-year low.” Continued next page
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