Comments on: Soaring Construction Costs Drop Housing Affordability to Lowest Level in a Decade https://eyeonhousing.org/2022/02/soaring-construction-costs-drop-housing-affordability-to-lowest-level-in-a-decade/ National Association of Home Builders Discusses Economics and Housing Policy Tue, 08 Feb 2022 15:22:44 +0000 hourly 1 By: John P. White https://eyeonhousing.org/2022/02/soaring-construction-costs-drop-housing-affordability-to-lowest-level-in-a-decade/#comment-1896359 Tue, 08 Feb 2022 15:22:44 +0000 https://eyeonhousing.org/?p=31381#comment-1896359 I believe that the greatest threat to builders because of rising interest rates is the potential to lose sales in the sale backlog. The supply chain mess further complicates the problem by greatly extending the time a new home is under construction. It is very unlikely that buyers in the backlog are protected from rate increases by rate lock or rate cap agreements with their lenders.

We have already seen rate increases of more than 50 basis points and the FED announced rate increases have not even happened yet. Looking at the history of inflation and its impact on interest rates, I see that the last time the inflation rate exceeded 4% was 1988 to 1991 and this was the result:

Avg. Avg. Mtg. New Home
Year Inflation Rate Sales
1988 4.1 10.34 676
1989 4.8 10.32 650
1990 5.4 10.13 534
1991 4.2 9.25 509

I suggest that builders with extensive sales backlogs immediately begin to conduct a thorough review of their backlog to identify sales that may potentially be lost and work closely with lenders to resolve any problems.

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