3 minute readIs risk off?
Now that mortgage rates and consumer price inflation have peaked and headed downward, can builders exhale?
“How about some good news?” the chatter goes on social channels, to talk up isolated instances or mini-trends of improvement in complexion, pre-indication, or even a smidge of an uptick in behavior.
It’s human nature to want new year to signal a fresh start. Everybody wants – or needs – an end to what was an awful stretch of time – the whole of the last half of 2022 – for many homebuilders and their partners in many markets.
Still, remember Red is single family units. Currently there are 769 thousand single family units (red) under construction (SA). This was up slightly in December compared to November, but 59 thousand below the recent peak in April and May. Single family units under construction have peaked since single family starts are now declining. The reason there are so many homes under construction is probably due to supply constraints.” – Calculated Risk As improvements to those supply constraints occur, Calculated Risk’s Bill McBride notes, a surge of deliveries from this backlog of 769,000 homes will come in 2023. What it takes to close on them will be the make or break question of the year. Potential impacts to the aggregate ability to “clear” that pipeline of new homes under construction may start with the bedrock belief that baseline undersupply means demand is both fundamentally sound and has both wherewithal and motivation to buy in 2023. However, additional impacts to that clearing event could plausibly interfere with even such a fundamental supply-demand imbalance. They include: A piece in The Atlantic, taking stock of the enormous buzz Microsoft’s ChatGPT has created in “everything everywhere all at once” notes: For years, tech thinkers have been warning that flexible, creative AI will be a threat to white-collar employment, as robots replace skilled office workers whose jobs were once considered immune to automation. In the most extreme iteration, analysts imagine AI altering the employment landscape permanently. One Oxford study estimates that 47 percent of U.S. jobs might be at risk.” This phenomenon, and its potential effect, seemed until now so far off. Now, however, it has secured its place as one of the spinning plates of current potential impacts to ground-up market-rate for-sale and rental housing. This owes in part to the real ways its applications stand for the ability to eliminate headcount positions in so many kinds of going concerns. The smarter approach to 2023 will be one that assumes that on balance, broader trends will stay on the hostile and adverse axis of the headline continuum, and that succeeding will mean bucking the trends, and breaking ranks with peers. You know that for some individuals, couples, families, etc., the time to buy a home is the time to buy a home. They’re not part of a trend. The teams that will successfully weather 2023 will be better than the rest at finding them and providing value that will convince them they’re making the smartest decision they can make in a lifetime. Right now.
