Home Builders and Developers Are Thrilled With the Low Supply Problem

The Weekly Recap

Existing home sales in May were flat, Tesla’s competitors are adopting its technology, auto loans are now worth more than the value of the car due to high interest rates, regional bank stocks are rallying, BlackRock filed paperwork to launch a crypto ETF, Virgin Galactic is launching its first commercial space flight, the final stretch of the High Line in NYC has opened up and the fight I never knew I needed, Elon Musk and Mark Zuckerberg have agreed to a cage match.

Home Builders and Developers Are Thrilled With the Low Supply Problem

It’s not a seller’s or buyer’s market these days… It’s a home builders market. With almost 84% of current homeowners locked into their existing homes with rates of around 3%, low inventory continues to drive buyers absolutely crazy. With increased buyer activity comes increased demand for homes, but when there are no homes available on the market, the solution is to build more.

According to the National Association of Home Builders, builder confidence pushed into positive territory in June for the first time in 11 months. With an improved supply chain due to post Covid pandemic bottlenecks easing, the decrease in material costs and buyers looking to get into the market after coming to the conclusion that higher rates are now just a part of life, enthusiasm has increased. Although project financing may still be considered a challenge, low levels of existing home inventory provide an optimistic perspective.

Investors who expand their real estate portfolios look at identifying opportunities such as this where creating inventory has an additional value add to the market place than just re-selling inventory. Identifying land, building a home and then selling for spec, in some cases going into contract even before construction is completed, is a business model that has taken off tremendously in markets like the Hamptons.

The increase in confidence from home builders also has a cascading effect on the rest of the economy. The construction industry is a significant contributor to economic growth and job creation, construction activity leads to an increase in housing supply and improved market sentiment. It also has a spillover effect in stimulating demand for building materials and appliances benefitting suppliers and manufacturers.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan.

Mortgage Rate Update

Mortgage rates slid down again this week but remain elevated compared to this time last year. Potential homebuyers have been watching rates closely and are waiting to come off the sidelines. However, inventory challenges persist as the number of existing homes for sale remains very low. Though, a recent rebound in single-family housing starts is an encouraging development that will hopefully extend through the summer.

News You Can Use

• Powell Expects More Fed Rate Hikes Ahead as Inflation Fight ‘Has A Long Way to Go’ CNBC

• Why Inflation Around the World Just Won’t Go Away Wall Street Journal

• Florida Is Losing Its Affordability Edge After Drawing a Flood of New Arrivals Bloomberg

• How Work From Home Worsened the Housing Shortage Axios

• Is the Inflation Battle Won? Not Yet. New York Times

• XI Tells Blinken ‘Very Good’ That Progress Made on US-China Ties Bloomberg

• What’s Behind the Widening Divide Between NYC and It’s Suburbs New York Times

• Home Listings Drop as Mortgage Rates Tie Owners Down Bloomberg

• SoftBank to Shift to ‘Offence Mode’ as AI Booms Reuters

• Return to Office Enters the Desperation Phase New York Times

• Virgin Galactic Sets First Commercial Space Tourism Flight for this Month CNBC

• Tesla’s Big Texas Win On its Technology Usage Reuters

• AI Will Make Having a Lucrative Side Hustle or Startup Much Easier CNBC

• Mark Zuckerberg is Ready to Fight Elon Musk In A Cage Match The Verge

The Deep Insight

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