5 minute read
Finance: Can we escape a crash? The housing market is saying yes
DO’S
Do look for wood species that blend into the overall aesthetic of your home.
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Do allow natural grains to show through, as opposed to covering or concealing their natural beauty.
Do consider using wood as a way to make a feature wall or architectural element.
Do consider painting wood to bring in color into a space.
Do look for materials to pair with wood such as glass or steel.
DON’TS
Don’t mix too many different wood species in the same space.
Don’t alter or cover fine grains of wood.
Don’t overlook using highlighting wood in small ways such as baseboards, casings or trims.
Don’t ignore the opportunity to highlight wood through the use of elements such as hardware.
Don’t overlook the opportunity to make custom wood pieces or elements through the help of a millworker or carpenter.
Cathy Hobbs, based in New York City, is an Emmy Award-winning television host and a nationally known interior design and home staging expert with offices in New York City, Boston and Washington, D.C. Website at cathyhobbs.com. ©2022 Tribune Content Agency, LLC.
A painted wood railing creates a sense of contrast and interest.
Finance Can we escape a crash? The housing market is saying yes
By Conor Sen
From stagflation to cost relief in six months — that’s the new picture of the housing market that has emerged in just the last few weeks. And to the extent housing has been a microcosm for the pandemic-era economy, the cooldown will present new challenges and opportunities over the next six months for both sellers and buyers. It should also provide some broader reassurance: It’s looking possible that we can unwind some of the explosion in housing unaffordability without crashing the market.
When stagflation was the leading dynamic back in March, the housing market story was: Relentless cost inflation and an inability for supply chains to catch up to demand is bad, but people still really want to own homes, and low mortgage rates are helping keep demand strong.
Today, the story has changed. Supply chains are finally catching up to demand, in large part because higher mortgage rates are making buyers more skittish and damping sales. At the same time, homebuilders are now in a position to use some of the cushion from record-high profit margins to offer incentives to buyers, improving the affordability picture for potential homeowners.
Because lower demand is leading to supply chain relief, homebuilders are in a position to push back on cost increases from suppliers, helping them offset some of the incentives being offered to buyers. And to the extent slowing cost inflation in the housing market is a bellwether for inflation in the broader economy, there’s the prospect of the Federal Reserve becoming more relaxed. That will allow mortgage rates to fall back somewhat, helping even more with affordability and getting the housing market back to something more like normal growth.
The first sign that relentless cost inflation was shifting was the drop in single-family housing starts over the past two months. Between April and June, single-family starts fell by 16%, and they are now at the lowest level they have been in two years.
Industry commentary suggests the downtrend will continue in the short term. In its earnings call on Tuesday, Forestar Group, a residential lot development company, said it believes “builders are going to try to rightsize their inventory on a project-by-project basis,” which is why Forestar lowered its guidance for lots deliveries in the coming quarter. On Thursday, DR Horton, the largest homebuilder in America and Forestar’s main customer, said it has slowed the pace of housing starts this quarter to account for softening buyer interest. We’re now seeing the number of single-family homes under construction fall for the first time since demand surged in the middle of 2020.
For an industry that’s been dealing with rampant cost inflation due to supply constraints, a reduction in demand from homebuilders is the quickest way to bring the market back into balance. Lumber has been a well-publicized source of higher costs, and lumber futures have fallen in price by almost 60% since early March, which will provide builders with some relief over the next couple quarters.
But lumber is just the start. In their June homebuilder survey, Rick Palacios Jr. of John Burns Real Estate Consulting noted that builders in many metro areas were starting to see broad-based cost relief on the materials side while anticipating relief on the labor side. DR Horton echoed those sentiments in its earnings call, noting that labor was an opportunity for cost relief in addition to lumber prices, and that its “goal will be to do as much as we can on the cost side to offset the impact that we see from prices flattening.”
The housing affordability crisis of the last couple of years has been a function of three factors: extreme cost pressures that homebuilders had to absorb, record-high homebuilder profit margins that were a function of high demand and low supply, and, more recently, the surge in mortgage rates engineered by the Federal Reserve. There is now room for all of those to adjust somewhat in the coming months in a healthy way. The response in some metro areas will be more balanced than others, but ultimately we’re headed toward the outcome the Federal Reserve wants — a housing market supply chain with a little more slack than it has had and without the kind of inflation that has destabilized the broader economy.
Conor Sen is a Bloomberg Opinion columnist. He is founder of Peachtree Creek Investments and may have a stake in the areas he writes about. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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