KB Home reports 68% new home construction cancellation in Q4 2022.
As the Federal Reserve continues its hawkish market reset that pushed interest and mortgage rates up, real estate experts are sounding the alarm that the US market is in for “big trouble.”
“When you have growth and rising interest rates like we have, that’s a big problem for housing. Interest rates are like the mother’s milk of housing,” Pulte Capital CEO Bill Pulte said in an interview with Maria Bartiromo’s FOX Business on Thursday. “And if you cut it off, you will be in big trouble. And when you have such a sharp increase in interest rates, it will just stop a lot of things.”
“This is a story about two cities. I hate to associate this with politics, but in redder states, places like Florida, Texas, office buildings are quite busy. Business is booming. There is more supply and demand,” Thor Equities CEO Joe. Sitt later said in Varney & Co. “More than that, I hate to say it, markets like ours here in New York, Chicago, San Francisco are a ghost town. San Francisco is destroyed.”
One of the largest housing construction companies in the country, KB Home, published a report for the fourth quarter Wednesday, which pointed to new signs of weakness in the housing market. According to the report, KB Home faced 68% abandonment of new construction projects.
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Mortgage rates also rose last week, with the 30-year rate rising to 6.48% and 15-year mortgages at 5.73% from 5.68% a week earlier. According to the Mortgage Bankers Association (MBA), higher mortgage rates continue to test the affordability of home buyers.
Fed Chairman Jerome Powell warned Tuesday that raising interest rates to slow the economy is “unpopular” in the short term and could even spark political opposition.
“Price stability is the foundation of a healthy economy and delivers immeasurable benefits to the public over time,” Powell said Tuesday in a speech prepared for a conference hosted by Sweden’s central bank. “But restoring price stability in the face of high inflation may require measures that are not popular in the short term as we raise interest rates to slow the economy.”
“It’s going to be tough,” Pulte said of the real estate market. ” [KB Home] the cancellation rate… was through the roof, something like 68%, which is just huge. Usually this number is around 10, maximum 20%. So I think it’s going to be a tough road this year and I think you’re going to start seeing that in earnings towards the end of this year and, frankly, next year. I think earnings will continue to deteriorate.”
Real estate investor Sitt said it would “take some time” for metropolitan areas to see a recovery in the commercial and personal housing markets.
“I think cities will wake up and try to respond,” Sitt said. “I would say rent in San Francisco is probably down about 35%. Without exaggeration. What’s happening in this market is amazing.”
Real estate investment goes where the money “feels comfortable,” according to Sitt, who predicted Sun Belt states could see less volatility this year due to a boom in manufacturing jobs.
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“I again hate talking about politics, but on a global scale, autocracies do best. Singapore, Dubai, Monaco. Some people joke that Florida and Texas are part of it,” Thor Equities CEO said. “The world order is changing, in particular, because of some conflicts with China. So, you have this huge pressure wave and now the whole Southeast will get its next economic benefit. I call it the battery belt, this battery belt market with all the jobs that will be created for manufacturing will have a ripple effect.”
Pulte countered that his firm has yet to find promising opportunities in the real estate sector this year due to mounting pressure on interest rates.
“Not yet. It will be quite interesting,” Pulte said. Mergers and Acquisitions [mergers and acquisitions] The environment in homes and building products is something to keep an eye on for the next six, 12, 18 months. It’s not time yet.”
Megan Henney and Nora Colomer of FOX Business contributed to this report.
Credit: www.foxbusiness.com /