Housing market inventory is so scarce that builders will be in the driver’s seat for years to come, says KB Home’s CEO

Make no mistake: Homebuilders have exceeded expectations this year.Taking KB Home as an example, it records Net Home Sales 3,936 homes sold in the three months ended May 31.That performance is in line with the 3,914 homes it sold in the same three-month window in 2022 — a period also in mortgage rate Breakthrough 5.5%.

in a recent interview wealthKB Home CEO Jeffrey Mezger expressed his optimism about the outlook for the homebuilding industry, attributing it to a chronic shortage of existing and resale housing inventory. The lack of inventory presents a multi-year opportunity for homebuilders, according to Metzger.

“I shared this on our last earnings call when we quoted ‘find the market’ and resumed our sales velocity (in early 2023, we’ve been raising (house) prices across the region and in second The quarterly report said that we had price increases in 70% to 75% of our neighborhoods in the second quarter. I would say that home prices have bottomed out. If you look at the macro perspective, it’s every Cities are stories where there is no (existing) stock,” Metzger told wealth.

In a normal and balanced housing market, the county would have a six-month supply of inventory, or 2.6 million listings, Metzger said. However, we are far from reaching this level.

“Today, (months of supply) are being quoted as 1 month, 1.2 months, so instead of 2.6 million homes to choose from, you have 500,000. Uninhabitable, these homes had to be acquired, knocked down and rebuilt. So our largest competitor resale inventory had no stock. At our price point, the quoted price on the market (months supply) was changed to quoted by the day: 11 days , 12-day resale supply,” Mezger said. wealth.

Metzger said a lack of existing inventory, combined with pricing adjustments for new homes and incentives offered by builders, is behind the rebound in new home sales this year. In fact, new home sales were up 31% year-over-year, According to the US Census Bureau.

“Historically, our biggest competitors didn’t have any inventory, and on the construction side, we’ve never caught up because of all the supply chain issues and everything we’ve been through. So the shortage of new homes and resale homes exacerbates the lack of inventory , while Millennials and Gen Z are now at home buying age, demographic demand is strong. So when you have strong (demographic) demand, and no inventory, even if rates go up, the demand is still strong enough that buyers will adapt (mortgage loan) rates, and sales remain strong.” wealth.

Metzger is right: There isn’t much housing inventory available for sale.

According to Realtor.com, there will be 46% fewer active home listings in August 2023 compared to August 2019. The stunning decline in inventory is a defining feature of the post-pandemic housing market, pushing supply and demand dynamics into uncharted territory.

Notably, of the nation’s 100 largest housing markets, only Austin has managed to return to pre-pandemic inventory levels. In contrast, places like Hartford, Connecticut, saw a jaw-dropping 70% drop in the number of homes available for purchase.

The scarcity of existing inventory has also prevented a sharp decline in home prices across the country, despite historic challenges to housing affordability amid a sharp rise in mortgage rates since 2021 (from 3% to over 7%).