The FED is on record that they are seeking 5% unemployment, which sounds perplexing to most of us. Their thinking is with more people out of work, they will cut spending, thereby reducing inflation with fewer contributors to the economy. How will this affect housing? Let’s dive into this.

While the FED’s actions don’t necessarily directly affect the real estate sector, the ripples in the economy will definitely be felt in our real estate market. I am following several new home builders in and around the Houston area and I’ve noticed a few trends.

First, their completed inventory is increasing. They are sitting on more homes than they have over the past three years. One homebuilder I follow has 8 completed inventory homes awaiting buyers in a community north of The Woodlands. It equates to roughly $4.5 million in receivables that is now burning interest payments at an uncomfortable rate.

Secondly, are there deals to be had? Well, that depends. Several of these builders are selling and closing homes at 20% below Spring 2022 pricing highs. Many of these homes are listed in the MLS and they are quite easy to track. It is a pretty consistent theme. Will the builder always reduce to this percentage for every home? No. But, it is a good benchmark. My wife and I have been home shopping recently and found one we thought would make sense for us. We offered within these parameters on a home we liked. A few doors down, the same builder had closed a home right around these numbers two weeks previously. They chose not to accept our exact offer in terms, and countered us at $17 per foot higher than our educated offer, thus choosing to wait for a higher price and/or better terms.

Since then, that home has gone under contract. I will be curious to see what the closing price and terms will be. This is a simple “time value of money” equation for a new home builder. We were about $28,000 apart. The VP of Sales ran a simple calculation and bet that his monthly carry would not reach the delta of $28,000 between our offer and his counter offer. In other words, he believed the home would sell for a higher price than our offer to compensate for the additional carrying costs. In my opinion did the potential buyer overpay? Yes, if their offer was substantially higher than ours. There was easily verifiable, supportive evidence for the offer terms we made.

Finally, our lack of inventory continues to be the X factor within the industry. The Woodlands has approximately 29,000 single family homes/condominiums within the development. As of this morning, there are 117 single family homes listed for sale in the MLS. A healthier market would produce approximately 250-400 homes for sale. As you can see we are still far below the amount of inventory needed to ease pricing pressure. This is a hybrid buyers AND sellers market. Attractive homes with expert photography and marketing are still producing very solid offers in price and terms.

As always, thank you for reading and if you have any specific questions about your market, don’t hesitate to reach out as I follow a multitude of local markets and would enjoy connecting with you!