LOS ANGELES (AP) — Homebuilders are ramping up for the looming spring homebuying season, which begins in late February and sets the pace for residential construction activity for the year.
Higher mortgage rates last year drove up borrowing costs, stretching the limits of affordability for many would-be buyers. Sales of new U.S. homes declined 12 percent in the first 10 months of 2018 from a year earlier.
Now mortgage rates are falling, reaching their lowest levels in nine months, driving home loan applications sharply higher.
That trend bodes well for homebuilders like Scottsdale, Arizona-based homebuilder Taylor Morrison Corp., which builds homes in California, Texas, Florida and six other states.
CEO Sheryl Palmer recently spoke to The Associated Press about the state of the housing market, the impact of higher mortgage rates and what she thinks is holding back more new home construction. The interview has been edited for length and clarity.
Q: How do you see the housing market shaping up this year?
A: I wish my crystal ball was clear enough. The spring is going to be critical in understanding what 2019 looks like. We started seeing (slower demand) in our traffic patterns and absorptions about late September. There was a psychological impact when rates got over 5 percent.
Q: Mortgage rates remain above where they were a year ago, despite easing in recent weeks. Do you expect buyers will adjust to the higher rates?
A: I do. I haven’t been a believer that we’re going to see significant rate increases this year. I’m not sure I see that. I think the Fed is taking a slightly different wait-and-see view. When we look at our backlog, our consumers have a lot of room in what they can afford and what they’re buying. So it’s not as much about affordability as a sentiment. So, I do think there’s an adjustment period.
Q: Are you looking to cater more to first-time buyers this year?
A: We definitely cater to all buyer groups, but when you look at the first-time buyer, I would tell you there are some subsets of that buyer as well. And with our AV Homes acquisition they had some very nice, long-owned land assets that absolutely cater to the first-time buyer. Our first-time buyer exposure has predominantly been more on the professional first-time buyers. New job, steady dual income. That could be $200,000-$350,000 in Atlanta and $700,000 or $800,000 in the Bay Area.
Q: The pace of new home construction has been held back for years by a shortage of skilled labor, land ready for residential development and regulatory hurdles. Do you see that improving in the near term?
A: We’re not growing enough new talent in the building industry. I would say on a more macro level, the shortage of labor, given the aging out of America, immigration changes and the lack of vocational programs through the school system for the last 10 years, this isn’t going to solve itself overnight. Then there’s a PR job to be done. This is a really good industry, it just hasn’t been culturally where kids are aspiring to go. A lot of work to be done on that. Land is tough in good markets or bad markets. We haven’t seen any relief on the land side.
Q: To tackle that labor shortage, are homebuilders closer to adopting a more automated prefabrication model?
A: There is a lot of work being done by us and a lot of builders on the margins. In some respects, it moves labor from the field to the plants. But you still have to construct the walls. So, you have a labor issue no matter what. So far, the cost equation is not working.