‘We’re in a housing recession right now,’ NAHB CEO says
National Association of Home Builders CEO Jerry Howard joins Yahoo Finance Live to discuss the state of the housing market, home builder sentiment, inflation, Fed interest rate hikes, a housing recession, and the outlook for the housing market going into 2023.
Video Transcript
- Well, US housing starts, they were down 0.5% in November to its lowest level since August of 2020, while building permits tumbled roughly 11% to their lowest level since June of 2020. The National Association of Homebuilders CEO, Jerry Howard, is here to discuss. Jerry, great to have some of your time this morning. What we've also seen, even in the earnings of some of the companies that have reported for-- where we are still seeing some weakness, it's not just in the number of homes that are starting to be contracted, but it's also in the prices that people are willing to pay for homes. Where do you expect there to be some strength that the industry can eventually see, especially as the Fed is continuing on its own pathway in this rate policy?
JERRY HOWARD: Well, first of all the area of strength is one that is always strong, and that's the very high end of the market. Those who are buying second homes and the very wealthy, they have money now. They can afford it and they're still buying. So the builders that focus in that segment of the industry are doing relatively well.
The rest of the market is not looking very strong for '23. I'm particularly concerned with the first-time home buyer quadrant, and I'm concerned with that because that really dictates the health of the entire chain of housing. And so it's very, very difficult to build at that price point right now. And it's something that we're watching very carefully.
- And so-- Jerry, it's Julie here. What changes it? Is it just a matter of when the Fed stops raising rates that things will be allowed to improve?
JERRY HOWARD: Well, the Fed and their interest rates has an impact up and down the chain obviously. In the first-time homebuyer market, it's also the fact that cost of construction is still like 10% higher than the inflation rate is. So cost of construction, the cost of capital, it's all playing into it. And that's having an impact where we firmly believe that we're in a housing recession right now.
- Jerry, some commentary recently from RH CEO-- of course, the high end home furnishings company. That CEO says the housing market is collapsing. Do you share that view?
JERRY HOWARD: I think we're in a housing recession right now. I do think that it's going to be different from '08. I don't think people should panic here. And the big difference is, in '08 we had a glut of supply. Here, we do not have a glut of supply. In fact, we have a supply shortage.
And that's going to limit how low prices can drop. So I think we're going to be in for a rough year in '23. But I think the floor is a lot higher than it was in '08, and we'll come back a lot faster we're looking for a turnaround in early '24.
- What will lead that turnaround?
JERRY HOWARD: I think what will lead that turnaround is going to be a reduction in interest rates. And I think we'll ultimately get our supply chain back in order, which will help bring down construction costs. And I also think that policymakers are starting to realize that a lot of the policies we have at the local, state, and federal level are adding to the cost of housing. And I think they're finally going to do something about it.
- National Association of Homebuilders CEO, Jerry Howard, good to see you. Happy holidays.
