Interview Synopsis

US homebuilding industry 2023 outlook

  • Public Equity
  • Industrials
  • North America

The US housing market is in for a “rough ride” as supply issues and inflation continue to bite, a Forum Interview revealed.

US single-family starts under-supplied until late 2024

The specialist, a former economist at The White House, commented on how inflated Fico scores and the credit environment could ripple through the housing market in the coming years. They attributed Fico inflation to two main factors and estimated that there has been a 10-point increase relative to 2005. Although borrowers have not been impacted materially, the credit profile of the weakest 10% is “worse than is generally believed based on their Ficos”, we were told.

Impact is expected to be felt initially on the Federal Housing Administration, the new home buyer segment, and the non-qualified mortgage space. As borrower credit quality diminishes against the backdrop of a weakening job market next year, the expert said the ultimate question is whether a credit pullback will ensue. 

Additionally, the specialist said foreclosures will soon “start to tick up” due to the backlog caused by COVID-19, noting that approximately 500,000 borrowers are still in COVID-related forbearance. The foreclosure process is expected to bring some properties back to the market over the next 18 months. 

We heard the single-family category typically represent about 70% of total starts but this year is about 64%, indicating “a big change for the market”, the expert said. They added that there has been a shift towards multi-family and it could take until Q3/4 2024 before single-family rebounds to the 70% range. After nine months of declines in new home sales, the specialist said there is now an oversupply in the multi-family sector, with a correction likely next year. “It’s just a question of when”.

Given the challenging macro environment and end of COVID-19 subsidies, the expert also expects a decrease in activity among first time buyers. A general slowdown in household formation is also expected to hamper demand. In response, builders will have to be more aggressive on price reductions, they said.  A 50% decrease in new starts would indicate that “it can’t get much worse”, we were told, with permitting activity a good indicator of builder confidence.  

Click here to access all the human insights in the Third Bridge Forum Interview, “US Homebuilding Industry – Regional Expectations & 2023 Outlook”.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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