The current rate environment is adversely affecting the new home market, which had previously outperformed existing-home sales. Rising existing home inventories are likely to suppress new construction activity. Builders are responding to disappointing demand and a lackluster spring home-buying season by adjusting construction plans. Additionally, inventories of existing homes in key markets may further diminish the need for new development. Moreover, builders face rising costs linked to tariffs on various construction materials, and despite advocacy for a rate cut by some Federal Reserve members, rates have remained unchanged since December.
The higher-for-longer rate environment is impacting new home markets, as rising inventory of existing homes is expected to keep new construction activity in check.
Builders are modifying their new construction plans in response to a less enthusiastic spring home-buying season and declining demand projections.
Increasing inventories of existing homes in major construction markets are likely to further reduce the need for new housing development.
Fed Gov. Christopher Waller argues for a 25-basis-point rate cut, highlighting the temporary nature of price increases due to tariffs.
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