Real Estate

Homebuilders and Investors Are Feeling the Intensity of the Struggling Housing Market

BY Rahul Tora TIMESeptember 15, 2022 PRINT

Homebuilders are slowing down construction due to the struggling housing market.

According to the U.S. Census Bureau, the sale of newly built homes has dropped to a five-year low, at around 511,000 for the month of July. The July census data also show that new homes actively under construction are at about 839,000, which would make it the first time in history in which U.S. homebuilders are building more homes than they are selling.

The continued pile-up for new housing inventory is imminent. About 78 percent of Americans are expecting a housing crash in the next two years, as revealed in a recent survey by Consumer Affairs. It also reported that 80 percent of Americans want a mild recession to occur, as the sentiment is leading to much more lower mortgage applications and lower home sales.

In previous months, companies such as Starwood started to exit the housing market. Blackstone also has now joined the group of large investors exiting the housing market, as reported by Bloomberg. Blackstone is starting to halt home purchases in 38 cities. KKR & Co., Amherst Holding, American Homes 4 Rent, and Amherst Holdings are also reported to have slowed acquisitions.

Toll Brothers, one of the largest homebuilders in the country focused on luxury units worth more than $1 million, reported in the prior quarter a 60 percent decline in home-order contracts year over year.

Data from Zonda, which provides housing market analytics, is showing a massive surge in quick move-in inventory. This is defined as homes that are ready to be moved into within the next three months. The move-in inventory increased to around 21,532 in August, from around 8,925 in April, a nearly three-fold increase.

As investors shift away from the housing market and homebuilders start to slow down, Federal Reserve Chair Jerome Powell is still maintaining the restrictive policy stance. Projections for the federal funds rate show are at around 4 percent through the end of 2023.

The increase in the federal funds rate will continue not only to deter investors from the housing market but also lead to massive selloffs on property investments. Based on Zillow, the capitalization rate (also known as cap rate) has been around 4.5 percent for the past two years for investors, when the federal funds rate was at zero percent. Investopedia defines the cap rate as the rate of return expected to be generated on a real estate investment property.

Investors in big cities throughout the country make up anywhere from a quarter to a third of all demand, according to Redfin. Investors who typically use adjustable-rate mortgages will now see little to no incentive for small returns as policymakers aggressively hikes interest rates. As rates increase, banks will continue to make margin calls on outstanding real estate loans, which likely will result in investors selling their properties and leading to even more housing supply hitting the market.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.

Correction: A previous version of this article incorrectly described Opendoor’s actions. The Epoch Times regrets the error.

Rahul Tora
Rahul Tora is a New York-based writer focusing on the economy, business, and world events. He has 6 years of experience in various roles within the financial services industry working for JPMorgan and Citigroup. He has served in bank functions ranging from risk management, regulatory reporting, and internal audits.
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