Since the pandemic, the homebuilding industry has experienced rapidly changing fluctuations in pricing. Now that the federal government has once again raised the interest rates, the future of homebuilders throughout the country has become unclear. Pairing this with supply chain shortages and accurately forecasting the future becomes much more difficult. Thankfully, there are variables that are strong indicators as to which way the market is heading which give insight on how to properly prepare your business to successfully navigate through it. By understanding how these interest rate hikes affect homebuilders we can begin to understand the potential future of how the homebuilding market will pan out.
Federal Reserve Raises Interest Rates
In an ongoing effort to combat high inflation rates, the Federal government has once again raised interest rates, this time by .75 of a percentage point. With this rate hike, mortgages have become even more costly for the consumer which, in turn, has dropped the confidence of homebuilders moving forward. Now, having to pay more for construction loans, buyers are expected to slow down on building new homes which have both the lumber and homebuilding industry in a complicated predicament. With new home sales reaching their slowest pace in over 6 years, it is clear that buyer demand has significantly decreased due to rising home prices and interest rate hikes. This means that the demand for all new homes has also decreased by almost 10% from July 2022 to the detriment of the home-building industry. This pullback in demand has caused would-be new home buyers to wait until interest rates have returned to normal. Thankfully, the number of permits for new multi-family units increased by 2.8% in July helping to offset the lack of new single-family projects which, in August, were 3.5% below the July figure.
Interest Raise Affect on Home Builders
With a diminishing demand for new homes, the homebuilding industry is left in a difficult dilemma. Homebuilders have already been faced with a higher cost of labor and material and now, with the interest raise, they are also paying more for construction loans. These unusually high costs have deterred many aspiring homeowners to delay their endeavors. Interest rate hikes are being used to slow the economy, and while they may succeed in the long run, builders and home buyers may face detrimental consequences in the short term.
Price of Lumber
Integral to every home construction is the price of lumber. Currently, the price of lumber is down 70% from its peak back in March. While the price of lumber has returned to pre-pandemic levels, the housing market is experiencing a sharp slowdown amid the new rate hike. The return to modestly priced lumber would normally indicate a boost in new home construction, however, its effect is overshadowed by the immense rise in homebuilding costs and the interest rates attached to the loans used to pay for them. As for the lumber market, the lower demand anticipated by buyers means that the lumber industry should prepare to hold onto lower amounts of inventory. Decreased demand for new homes has already led to the decreased price of lumber and it should be expected to remain around there until housing prices return to normal levels.
High-Quality Building Materials from a Dedicated Supplier
It is obvious that the housing market is in a place of uncertainty. As the Fed continues to raise interest rates, housing becomes less and less affordable, which creates a decrease in demand for new home constructions. Hopefully, the interest rate hikes will begin to positively affect the inflation rates and the price of homes will, as a result, begin to decrease. As this will take some time to see the effects, homebuilders should be prepared for a decrease in demand as the housing market as a whole is slowing down. As homebuilders, the quality of a home build not only depends on the craftsmanship but also on the materials that are used in its construction. At National Lumber, we supply our builders with high-quality materials, when and where they are needed. Our inventory specialists are proficiently guiding our lumber stock through these unfortunate times to ensure that our homebuilders are still able to rely on a dedicated material supplier. Reach out today to speak to one of our experts and find out how National Lumber can supply you with the materials you need when you need them.