Rather than do backflips of joy that these United States clinched

Image courtesy of Calculated Risk

The inventory of completed homes for sale – at 41 thousand – is up from the record low of 32 thousand in 2021 and early 2022. This is about half the normal level of completed homes for sale but starting to increase.

The inventory of homes under construction at 306 thousand is very high, and about 9% below the record set in 2006. The inventory of homes not started is at a record 110 thousand.

So, here’s where we get clarity in the next 150 days. Atypically – given the adversely moving targets of Fed funds rate increases, inflation, and volatility’s impact on consumer confidence – they have to work with equal focus on both securing their backlog sales, which is hard, and moving a higher-than-normal spec pipeline to clear the market sufficiently to establish a new-normal mark to market.

One of our trusted senior level strategic building and development sources lays out the predicament – which will see clarity in the next 150 days – this way:

Cycle-times are still longer, so it will take longer to protect the backlog. Again, with this level of specs, how long can you do this?  You can’t allow standing inventory to pile up. Horton and Lennar won’t. It’s not in their nature, they know ‘he who cuts first cuts less’ and since Wall Street has already priced the builders for trouble, it won’t hurt the stock price. If those guys move, everyone else will have to.

So if sales drift down, and we can absorb the specs without major discounts, it won’t be a soft landing, but the plane will land and not catch on fire. If we hit an air pocket on sales, as seems to be happening in a few places, and it grows across the country, then very serious discounts will start, and we may need foam on the runway.

That’s why builders are desperately calling every scattered lot BFR company to try and off-load units.

None of this will change the long run trend in this country of undersupply. But that does not protect you from short term oversupply due to buyers loss of confidence.

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