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Consumer Resilience and the Housing Market: A Prolonged Supply Challenge

We are struck by the conflict between how this WSJ article notes that

  1. consumers who have low mortgage rates have excess cash and thus have “been so resilient in the face of higher interest rates, making it harder for the Fed to bring inflation back to its 2% target”
  2. “mortgage rates would need to fall closer to 5% for supply to start to normalize” (supply of existing homes)

If mortgage rates have to fall from the current 7+% to 5% for supply to start to normalize

AND one huge driver of that fall will be if/when the Fed starts cutting their rates

AND the Fed will only do that when they see inflation getting under control

AND consumers are resilient to current higher rates because of their excess cash due to current low mortgage payments

….then we could be in this abnormally low supply of existing homes for quite some time as 1 and 2 are basically in a negative feedback loop.

So not only are new homes currently taking an abnormally high share of the market compared to existing home sales, but it could be that way for quite a while.

This is good news for our Development Fund that focuses on lot development and new construction – for example, our deals with Jobalia, building lots to sell to D.R. Horton (mentioned in this article).

Reference: Ryan, C. (2024, June 28). America’s Frozen Housing Market Is Warping the Economy. The Wall Street Journal.

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