Homebuilder Lennar recently said in its earnings call that American homebuyers are facing increasing pressure due to persistent price hikes. This has pushed them to find ways to reduce home-buying expenses.
Inflation and Limited Housing Supply
Stuart Miller, executive chairman and co-CEO of Lennar, said on the company’s second-quarter earnings call that consumers are feeling more financial strain due to inflation and rising living costs, leading to increased credit challenges.
In the quarter, Lennar’s average home sales price for delivered homes was $426,000. This is a decrease from $449,000 in the same period last year.
Miller said that they are currently facing a situation of shortage of housing supply. However, consumers, out of necessity, are looking for incentives or discounts to afford the housing they require.
The housing affordability crisis is caused by the Federal Reserve’s monetary policy tightening and ongoing supply shortages. Recently, the Fed showed that it expects to cut interest rates once this year. Although the Fed doesn’t directly control mortgage rates, lender rates often move in response to the Fed’s actions.
Once the Fed begins rate cuts, the pent-up demand may be activated.
Homebuilders are trying out various strategies and incentives to lure buyers, as high mortgage rates discourage would-be buyers and sellers. One popular incentive that has helped encourage buyers is mortgage rate buydown.
However, analysts and investors are concerned about how these incentives might affect profit margins. In the latest quarter, Lennar had projected a gross margin of 23% for home sales in Q3. However, this fell short of analyst expectations of 24% based on Bloomberg data.
So, Is It a Good Time to Buy a Home?
Even though the Federal Reserve has kept interest rates steady in its latest meeting on May 1, 2024, mortgage rates remain around 7%. However, buying a house depends on more than just mortgage rates. Factors like housing inventory, obtaining the right mortgage lender, and negotiating a fair price for the home all play important roles.
Ultimately, buying a home depends on finding the right property in the ideal city, neighborhood, and block.
Mortgage rates have dropped below their average over the past 52 years. Since April 1971, the 30-year mortgage rate has averaged 7.73%, based on data from Freddie Mac. However, today’s rates offer little comfort to homebuyers who recall rates below 3% for much of 2021. Conversely, the highest recorded rate was 18.63% in October 1981.
According to Zillow research, the direction of mortgage rates, whether they are generally rising or falling, can impact whether existing homeowners consider selling their current home to move into another. This is a big decision since many current homeowners have mortgages at significantly lower rates.
The study found that rates would likely need to drop to between 4% and 5% before they would consider selling their current home to purchase another. The deadlock in mortgage rates has affected the shortage of existing homes for sale. Nevertheless, as the 2024 spring home buying season begins, there’s a rise in new listings.
According to Realtor.com, the week ending March 16 saw a 17.8% increase in sellers listing their homes compared to the same period in 2023. Overall, active inventory has risen by nearly 24% year-over-year.
Read Also:
Fed Diverges from Global Peers, Keeping Rates Higher for Longer
Fed Meeting June 2024: Key Takeaways and Economic Outlook
Insights into the Average Net Worth and Retirement Savings in the American Households
