Is the party over for home construction for new house building contracts? Well according to a survey of the sentiment of large builders, its scary times according to some builders, and they’re slashing production and slowing construction because they feel that the future is not going to be there for buyers. The broad slowdown is the way it’s called. What are you seeing in your market Are you a builder? Are you a supplier to a builder? Are you seeing this slowdown? Again this is a sentiment survey not necessarily a financial management survey. So the financial side of it says that there’s a fact data says 31% reduction in new home sales, cancellation rates jumped in June.
So if you’re a builder and you see people canceling contracts, you’re going to be scared. But is this temporary? Is this a permanent pullback? It’s not that people are looking to dump homes and sell houses as they did in the financial crisis. It’s just that some buyers are starting to go on pause and say look I don’t know if I want to jump in at these prices. Look at these cancellation rates year over year. The red is 21 The blue is 22 They’re all off the charts for cancellations of contracts. So if you’re a builder you might be panicking In fact a quarter of home builders are reducing prices. And a couple of reasons why these contracts are being canceled are mortgage rates are high, and that some people think that prices of homes are too high which may be it is the problem though is if you’re a home buyer, or you’re somebody who wants to buy a home, you have to have a place to live. If you’re renting you have to buy somewhere. Are there going to be deals? Remains to be seen. This is kind of a shakeout period. The next few months between now and the end of the big buying season is going to really determine what happens over the next year. Are the people who want to buy a house going to be resigned and surrender to the fact that they just need to keep renting? Do we kind of become a nation of renters because home values have become excessive? Are more people going to, even rent single-family homes not just apartments because the price is too high? And is that going to create a problem for the financial future? Look many people are able to retire because they bought a house 20-30 years ago and they paid it off and have no mortgage. Then you can retire. If you still have a rent of two or three or $4,000, you have to be on the treadmill chasing that rent every month. And if your rent is $3,200 right now what’s it going to be in 20 years? Right. So buying a house might seem expensive, but are there enough people that are willing to jump in at the current rate of mortgage interest and the current rate of the sales price to keep this house. What does that mean for the future? There are still more households being formed? More people that need a place to live every single month? So if there are no new homes being produced, where will these people live? There are apartment complexes being produced but not single-family homes.
So is there going to be a higher percentage of people renting in five or 10 years? And what does that mean for the financial future for people who have nothing to fall back on? And have a permanent monthly expense? That never goes away because if you pay off a mortgage in 20 or 30 years you don’t pay off the rent. Rent lasts forever It’s permanent.