Housing starts spiked upward in December:
This is more good news for the beginning of the Trump administration. Over the past two years housing starts have averaged 140,000 per year higher than the pre-pandemic average from his first term.
In other good news, the Atlanta Fed is now forecasting 3% GDP growth in the final quarter of 2024. Trump is taking over a strong economy.
Which of course he will take credit for, be applauded for by his cult and have the myth reinforced by the MSM along with right wing propaganda outlets.
Builders gotta build or they go out of business. Plus a lot of cities have relaxed rules (to the dismay of residents who want to hang up a "Closed, We're Full" sign).
Builders have had to cut prices to the bone and offer incentives, though, to keep selling even though there's a Buyers Strike on. Prices are slowly coming down on existing homes, but sellers are still too optimistic. Buyers have wised up that rates aren't coming back down to 3% and they're waiting for the price cuts.
Barring any big changes, this is the stand-off for the next year at least. Sellers clinging to overpriced real estate and buyers going "nope". Those who absolutely must sell will lower prices until a buyer bites, which will lower comps in their area. Buyers just need to keep their powder dry until they find a motivated seller.
Builders also tend to only build luxury McMansions these days because they're very profitable and cities and neighborhoods like the idea of rich (mostly) white people moving in. Banks are also happy to underwrite big, fat mortgages, which they make more money on. On the downside, if interest rates go up, or there's a recession, these super expensive properties become unaffordable and you're stuck with a swanky subdivision nobody can afford to live in.
If banks were more willing to underwrite small mortgages (say 100-200k), then building a 250k house instead of a 750k house becomes a better business prospect. But right now, banks avoid them like the plague because they're not profitable enough and people with smaller incomes are perceived as poorer credit risks, even when their credit scores are the same as some upper middle-class applicant. Some smart regulatory tweaking could help with that, but alas, for the next four years, any "tweaking" going on with financial regulation is going to mostly be about how to let techbros run amok with crypto scams and such.
Same reason the car companies only build large vehicles - they're a) more profitable and b) what people want. Americans like big houses and big cars (and they cannot lie). The market is responding to demand. Builders are starting to build a little smaller to attract buyers who are priced out of the McMansion market. There's a ton of those and they are sitting on money from waiting all these years.
People also want to lose weight and somehow the market isn’t responding to that desire by increasing the supply of Ozempic, Wegovy, etc.
Small cars and homes do actually sell whenever they’re actually offered. The problem is that small cars and homes aren’t as profitable as large cars and homes. Why bother building a small car or home that earns you, say, 15% profit when you can spend about the same amount of time and resources building a large car or home and earn, say, 30% profit?
+1
Betting markets say there is a 17% chance the economy will tank in 2025. And from watching the newly built homes in Seattle still awaiting buyers 9 months after their first open the builders are not dropping prices enough to keep up with the interest rates stability. I keep having this feeling expressed by Stephen Gould as "punctuated equilibrium." When the shit hits it will be bigly.
Um, rising interest rates will likely depress sales growth.