Homebuilders Are Prepared for Coming Slow-Down

North Las Vegas, NV, October 25, 2022-"A year ago, business was booming for Touchstone Living Inc. The Nevada builder had a list of 639 qualified buyers who wanted homes in its development about 15 miles north of the Las Vegas Strip,” reports the Wall Street Journal.

“Today, that list has shriveled to about 30. Many would-be buyers are unable to qualify for loans since mortgage rates have surged to 6.94%, their highest level since 2002 and more than double the rate of a year ago.

“Little of this is good news for Touchstone or its owner, Tom McCormick. That said, in a potential indicator for how this slowdown could play out, it isn’t looking like the last time the Las Vegas market melted down.

“Mr. McCormick said his new company has less debt and fewer lenders than his former company did heading into the 2007-2009 recession, and has grown more slowly and bought less land.

“‘I’ve learned my lesson,’ he said. Still, he said, ‘I’ve never seen it change this fast,’ referring to the rapid decline in sales.

“Touchstone owner Tom McCormick said he learned important lessons during the last downturn.

After a pandemic-fueled buying spree that unleashed the most powerful U.S. housing boom in 15 years, demand has plummeted as mortgage rates have risen. Finished homes are sitting on the market, hundreds of thousands of new ones are expected to be completed in the coming months, and many builders are cutting prices. Existing-home prices are declining from their springtime peaks, and single-family home construction in September fell 18% from a year earlier.

“During the earlier housing downturn, which was triggered in part by the collapse of the subprime-mortgage market, about half of all home builders disappeared. Home builders that lived through that said they learned some hard lessons, and that the current slowdown won’t lead to another industry implosion. Also, mortgage lenders have tightened underwriting standards in recent years, reducing the risk of a wave of foreclosures.”