Homebuilders will retain pricing power due to low inventory of homes for sale.
Published May 7, 2020
Limited Housing Supply
The pandemic-induced housing crash could have been worse. While I would hardly classify this trait of this down cycle as serendipitous, the damage from severely limited housing supply had already been done. In my previous blogs, I have emphasized that housing supply was tamped down by the difficulties imposed on the development of new home communities. Going into the pandemic at least the housing inventory was not so large that home builders must compete with their own inventory by lowering prices.
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Granted, there are still concerns about the shadow inventory that still exists in home builders’ backlogs from a strong selling season in January and February. With more stringent mortgage lending standards many new home buyers will not be able to qualify for a loan. Couple that with skittish buyers who are concerned about the economy or have lost their jobs, this hidden inventory is lurking. From my own experience of living through five housing recessions, I would have had grave concerns. However, this inventory is bound to be snapped up in 2Q20 and 3Q20 by a small cadre of home buyers that need to move.
National Home Prices
A recent article featured in the Wall Street Journal noted that prices for homes on the resale market are rising. This is a much different phenomenon when you look back at what happened during previous housing recessions, especially Great Recession when housing was over-built.
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The pandemic really landed a blow to housing demand. At least the hit was minimized by fortune or fate, when housing supply was so low. Timing is everything. It could have been worse.
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About Jeff Whiton
Jeff formerly headed operations for Lennar and KB Home in Colorado building nearly two per cent of the state’s total single-family housing stock. He was honored as Colorado’s Home Builder of the Year in 2001. Whiton also served as the CEO of the Home Builders Association of Metro Denver for eight years reviving the association from near bankruptcy after the Great Recession.