House, Residence, Blue

Weaker Builder Sentiment Could Hold This Market Back
One of the things that we have learned over the last couple years is that we can’t really predict what will happen in a crisis, or even a disruption.

As existing home sales thin because of the shortage of available inventory, and interest rates begin a slow and steady climb by 25% above what they had been a year ago, inflation comes in and begins to play havoc with construction sentiment.

For the fourth straight month there has been a decline in the National Home Builders Housing Market Index which has fallen below 80 for the first time since last September. According to the NAHB, anything above 50% is positive but there is concern that the trend line continues to give pause to individuals’ unbridled optimism over the current real estate market. February’s NAHB Housing Market Index fell to 79.

Even though builder sentiment, conditions, expectations and supply-side building material constraints have always affected the market’s perception, when it comes right down to it, it is buyers and sellers who determine which way the market will head. Even though mortgage rates are climbing, they are still below a 5% fixed rate for a 30-year fixed mortgage. What first-time buyers are going to have to contend with is the “new geography” for home buying. For decades homes in the attractive neighborhoods have been affordable, but affordability in good neighborhoods today has become a rarity. Individuals seeking to enter the real estate market today may have to take other considerations into their buying equation to determine how and where they are going to be able to enter and remain despite economic highs and lows. If the housing market is going to remain as stable as it has for the last 40 years with the exception of the 2008 collapse, buying and selling strategies will have to account for inventory shortages and inflation. Right now, the market projections are being determined by interest rates, inventory, and a strong economy. If any one of those changes dramatically, there will be a shift in the strength of the real estate market in the United States.

Builders at this point are not going to risk overextending themselves financially and so with the builder’s skeptical sentiment falling to 79, it’s still at a very robust level.

It’s easy to forget that we have come out of a 2-year bull market when it comes to housing. Since 2019 many markets have appreciated between 30% and 40%.

Right now, they will have to be a bit patient to see if the current market levels are sustainable, and which combination of market constraints is enough to stop the upward trajectory. It will be a wait-and-see game: supply chain crisis, a lack of buyers and the increase in fixed rate mortgages. But it is clear that no one knows the true ramifications of all the factors that we see and those we don’t anticipate for 2022. There is still a severe shortage of available homes on the market, estimated to be almost 6 million houses needed to be built to satisfy potential demand.

If you have any questions about this information or title insurance, please contact Ralph Aponte: 732.914.1400.

Counsellors Title Agency, www.counsellorstitle.net, founded in 1996, is one of New Jersey’s most respected title agencies, serving all 21 New Jersey counties with title insurance, clearing title, escrow, tidelands searches, and closing and settlement services for commercial or industrial properties, waterfront properties and marinas, condominiums, townhouses or residential single-family homes. Counsellors Title also features its own Attorney Settlement Assistance Program™ [ASAP], which is an individual resource customized to fit the needs specifically of real estate attorneys, including, Documentation, Preparation, Disbursement of Funds, Attendance at Closing, HUD Preparation or Post-Closing Matters.

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