We're Heading Into a Housing Recession: NAHB CEO

no better conversation to have than with jerry howard you know him as the ceo of the national association of home builders and sir i'm wondering sort of your key takeaway from this report how you're reading it well uh the only way we can read it is that it looks like we're heading into a housing recession and uh if that is indeed the case it doesn't bode well for the economy as a whole um there there's still some hope that things can turn around but we're getting more and more pessimistic home builders getting more pessimistic yet still the affordability question there the need for more supply when we look at the housing starts data that we're going to get a little bit later in the week are people still going to want to be breaking ground jerry no i think people are going to start to hold off in fact when i travel the country and talk to builders a lot of them are starting to get very very cautious about whether they're going to break down that's particularly true in the spec market but it's also true in uh the market where they are negotiating with customers for sales right now because at the same time as we're seeing inflation on the the uh mortgage rates and and interest we're also seeing increases in uh construction costs that are really throwing the market off what i'm really worried about is historically housing has led us into every recession since world war ii but it's also led us out of every recession since world war ii right now with the supply shortage we have with the fact that we're getting hit at both ends of the pipeline uh cost of construction and then cost of loans i don't know that we'd be able to lead us out of a recession i think that this is a potentially dangerous situation i'm wondering if you can draw out a little bit more some of the supply side issues here jerry if confidence is hitting a new multi-year low then what does this mean in terms of the broader issues that you can see among builders and all the people who are in the supply side well you're going to see builders do what they do in terms of a recessionary climate they'll retrench a little bit some of them will start taking on contracts for larger uh remodeling and renovation projects you'll see them as i mentioned stop doing any spec housing and on the supply side hopefully this situation will drive policymakers to the conclusion that we need to have a long-term lumber agreement with canada that we need to get the supply chain fixed and that we need to get rid of some of the regulations particularly at the state and local level but also the federal level that are increasing the cost of housing and then lastly we need to look at our labor supplies over the long term there are still hundreds of thousands of jobs out there in the in the construction sector that haven't been filled so how do you square that if you have a number of jobs that are open that haven't been filled and yet you're starting to see a slowdown it's sort of this quote if we get there housing recession due to a supply issue or is are there more concerns about a demand issue well the more interest rates go up the more it becomes a demand issue it's sort of a catch 22 if you will their the demand had been very very strong we never fully uh stopped seeing demand as we came out of the great recession so demand was out there household formation is strong but if people can't afford to buy particularly the first time home buyer can't get into the market that has an impact across the board jerry how much duress are home builders under to lower their prices how much are they worrying about well the people who have signed contracts but haven't yet got their houses and what the knock-on effects are there well a lot of those contracts had escalator clauses in them believe it or not that the the builder would expect if he had to pay more for some of the materials that the customer would pick up the price at the back end or they would cancel the contract i'm starting to hear more and more now about cancellation of contracts uh in the last uh month a month and a half than i have ever before to the extent that prices can start following falling in the housing market then how do they fall how fast do they fall and do they fall fast enough to avert any potential future issues well that's an interesting question because uh we haven't had this situation before where we're going into a recession but we still have major supply shortages and i guess it's going to depend upon how recessionary the rest of the economy gets as to how this will all balance out in the end right now i think that if this recession is as our economists are saying relatively shallow and we come out of it in it by the middle or the end of next year i think we'll be okay but if it gets any more dire that's what i think we're going to have a longer term and a deeper problem what is the historical lead time if housing is the leading indicator what signals are you next looking for i think the next single signal that we have to look for is the labor markets and unemployment in fact right now in a conversation i had today with some economists that is the only signal that's outstanding that would would keep us from saying we're definitely heading into a a recession

Channel: Bloomberg Markets and Finance

Views: 851,366

Keywords: Bloomberg

Id: jn6RN2Y05v4

Length: 5min 20sec (320 seconds)

Published: Mon Jul 18 2022

Reddit Comments

[u/[deleted]]

Whats the alternate then? Like these mofos werent holding back lots when the market was in a crunch to squeeze the most out of buyers.

[u/SuojeluskuntaFIN]

I called a builder down in the LCOL city (pueblo CO) south of where I live. Prices have over doubled in 3-5 years. Asked them if they were considering price drops in the future if rates continue rising.

As expected they said no, but I doubt they would ever straight up say it. They are now saying they are offering incentives which is what I've heard from other builders. The problem is that saving x amount at closing or locking rates further out is not going to help monthly payments, which are the real deal killer.

The DTI ratio is outrageous in many cities and the only solution to get people reasonable payments is going to have to be price cuts right?

[u/it200219]

Where r the cash buyers? AirBnB STRs ? and those BRRRR dudes ? and Californian Tech Millionaires who were ready to jump and buy more with dips

[u/Beneficial-Rich-97]

But.. but.. supply and demand. House prices only go up I thought

[u/lurkingsince4ever]

Yet we were all crazy for saying this same time last year. Thanks for sharing!

[u/TangoOscarPapa2]

Cry harder Ramsey