Natixis government affairs specialist Susan Olson explores today’s challenging housing market with Ken Gear, CEO of Leading Builders of America, a trade association representing large US homebuilders. Ken has led successful campaigns on national housing policy, construction issues, mortgage finance, land use, energy efficiency, tax and labor law, and also leads several industry working groups addressing mortgage and housing issues.

Susan and Ken cover a range of topics in this podcast centered on housing’s rough patch thanks to supply shortages (both housing and supply chain), rising prices/interest rates, regulatory-related costs and delays leading to affordability challenges for hopeful homeowners. Nonetheless, Ken expresses confidence in the long-term view. Highlights of the discussion:
  • While many expected a Covid-related housing downturn, just the opposite unfolded as Americans working from home sought both larger homes and new locales, as many moved from cities to suburban and rural areas. Demand increased significantly across price points, from entry level to luxury homes, as home buyers prepared for a new remote work situation.
  • When the Fed acts, it directly impacts the supply/demand equation. Housing demand has waned when the Fed raised rates, not because consumers don’t want to buy homes – the desire is still high – but affordability has changed dramatically in recent months. On a $400,000 home, for example, mortgage rates have more than doubled from where they sat at the start of 2022. So, while still very motivated to buy, homeowners are waiting to see how it all shakes out before moving forward. What’s more, while demand has moderated, builders are still busy erecting new homes that buyers ordered six to eight months ago.
  • Time-consuming and costly regulatory requirements are also a factor. Existing and developing regulatory requirements at the local, state, and federal level range from Covid-related safety concerns to environmental issues and beyond. Such costs and delays are ultimately passed on to the home buyer.
  • Local and state regulation, and particularly a NIMBY (not in my backyard) sentiment, adds to the availability and affordability conundrum. Homeowners and local activists, particularly in desirable areas, who don’t want the nature of their communities to change fight against new development in what may be already densely populated areas. Builders are challenged to find welcoming areas for affordable and convenient housing, particularly for first-time buyers and those challenged financially.
  • “Everybody talks a good game” when it comes to affordable housing policy. Unfortunately, this critical problem often takes a back seat to other issues. Ken describes the US as ripe for a real conversation around affordable housing reform to find creative solutions to ensure that young people and those with financial challenges can share in the wealth creation that homeownership provides.
  • Despite the points above, Ken is hopeful for the long-term housing picture. The housing market has historically bounced back from challenging stretches, and today’s persistent demand falls on the positive side of the equation. Thanks to Dodd-Frank and other regulation post-2008, we face a dramatically different landscape than the last housing crisis. Today’s regulatory environment demands that potential home buyers can afford the mortgages they pursue, whereas in the last crisis, mortgages were granted to consumers without the means to pay them back. Furthermore, although it’s a challenging time to purchase a new home and commit to a higher interest rate, today’s price appreciation bodes well for the value of current homeowners’ assets.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of September 28, 2022, and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates.

Provided by Natixis Distribution, LLC, 888 Boylston Street, Boston, MA 02199. Natixis Managers includes all of the investment management and distribution entities affiliated with Natixis Distribution, LLC and Natixis Investment Managers S.A.