U.S. sees decline in number of homebuyers

The United States has a deep, decades-old housing shortage. Also, at the moment, homebuilders across the country are pulling back on development because they cannot sell enough homes.

How can both of these things be true? That riddle is at the heart of the boombust nature of housing, where an excess of regulation and the mixed incentives of the market mean there is never a supply that lines up with demand. One way or the other, solving it will require more building during downturns and, most likely, some sort of public program to subsidize it.

Consider what the past few months have visited on Hayden Homes, a regional homebuilder based in Redmond, Ore., that builds about 2,000 houses a year throughout the Pacific Northwest.

At the beginning of the year, Hayden’s biggest problem, shared by almost every other U.S. homebuilder, was figuring out how to supply enough houses for everyone who wanted one.

Now, in the space of a few weeks, the situation for Hayden, and the housing market, has reversed. Interest rates on the average 30-year mortgage have jumped to about 5.5 percent, from about 3 percent at the start of the year. That has added hundreds of dollars a month to the typical house payment and disqualified many buyers. At the same time, a broader slowdown in home sales and price gains have caused many would-be purchasers to pull back for fear of buying at the market’s peak.

Following a steep decline in sales for June, and after watching its waiting lists dissipate, Hayden is rejiggering its inventory to emphasize smaller, cheaper dwellings and ratcheting back the number of already-built “spec homes” it produces. All of this is happening even though the ranks of prospective buyers are still broadly employed, still sitting on a down payment and still dreaming of a new home.

“We would rather forgo a few sales in the future than be stuck with homes we are unable to sell now,” said Deborah Flagan, a vice president at Hayden.

The problem facing Hayden and other builders is simple: Sales of new homes are falling — down 15 percent this spring from a year earlier — at the same time that a wave of homes, begun before the jump in interest rates, are hitting the market. The number of homes that have been completed but not yet sold hit a 15-month high in May. Redfin, the real estate brokerage, recently reported that buyers were trying to back out of sales agreements at the fastest pace since the early weeks of the pandemic.

“Demand has slowed enough that builders are finding themselves with homes and no buyers for them,” said Ali Wolf, chief economist at Zonda, a housing data and consulting firm. “That is a problem we haven’t faced in years.”

Developers are responding the way Economics 101 says they should: by cutting prices on the houses they have already built and by pulling the plug on virtually any project that was not already too far along to be abandoned. Builders started construction on about 93,000 single-family homes in June, down 16 percent from a year earlier.

“Very smartly, builders are saying, ‘Hey, let’s rein it in,’ ” said Rick Palacios Jr., director of research for John Burns Real Estate Consulting. “Yes, we are undersupplied from a structural standpoint, but when rates roughly double in the space of three or four months, builders don’t care. They are planning their business for the now.”