For the past couple of years, the housing market has been driven by a fear of missing out—the kids call it FOMO. Buyers rushed to purchase anything that hit the market, worried that prices were accelerating. Each passing day meant paying more for a place to live.
How quickly things change. We've now shifted from FOMO to FOBATT, fear of buying at the top, which impedes home purchases as buyers ponder whether they’ll score a better deal by waiting a few months or even years.
These changes were underscored at Zonda’s Colorado Dealmakers event in September, where almost 400 professionals gathered to parse the data and get expert insight on where things are going.
Were attendees a bit nervous about where things are going? Absolutely.
Do I see reasons to be positive? You bet.
National Slowdown Has Buyers on the Sidelines
Zonda chief economist Ali Wolf set the pace for the day with her take on the national market. And her message set the tone for not only the Dealmakers event but also for the coming months: Buyers are looking for deals. They’re feeling the compound effect of higher prices and interest rates and wondering where that leaves them in the short to medium term.
We can watch this play out in real time by keeping an eye on trends in sales, prices, cancellations, and inventory. The markets slowing the most are often those that exploded with migrants through the recession and the pandemic, and the resale market looks more like 2019 than 2021. Builders are having trouble selling the homes that come back to them, and more than 80% of builders plan to slow starts over the next six months.
But we know buyers aren’t giving up the dream of homeownership. Generation Z and millennials are the largest group of buyers we’ve seen in decades. They want new houses and everything they represent—stability, comfort, security, and efficiency.
The interest is there, but how do we convince consumers that now is the right time to buy?
'Flight to Quality'
In any down market, investors look to quality. This year has seen the S&P 500 pummeled; the Dow Jones Industrial Average isn’t any better. Let’s not even mention technology stocks and the Nasdaq. Does that mean everything is down and the economy is doomed? No. A new type of quality inevitably bubbles to the surface to put a bottom on any down cycle. In this case, oil, gas, and financials have shown resiliency and offered a safe haven.
One theme is worth noting: The desire for quality remains in place throughout any downturn. What does that mean for the housing market? That’s the question builders need to figure out, the mystery that needs to be decoded. What mix of quality, incentives, and marketing will convince buyers to look beyond short-term difficulties and into the house of their dreams sooner rather than later?
Future of Housing
What do we do in the meantime? We can always hope mortgage rates go down, as they often do during a recession. We can use buydowns to help consumers get into mortgages. We can ensure their personal balance sheets are in good shape (and help repair them). We need to educate buyers, using a consultative approach to address any fears they may have about buying a home and getting a mortgage. Choose a place you want to put down roots!
The economy is one challenge, but there will be others. Entitlements won’t be any easier to obtain. Fire and the threat of fire will be weaponized by cities to put the brakes on growth. And water is as good as gold. Wherever we want to grow, we need an abundance.
But most important, as builders, we need to protect our business. That means staying true to our core markets, understanding our consumer, and sticking with our tried-and-true products. That’s how we’ll crack the code in 2022 to survive—and hopefully thrive—in 2023.
