The U.S. is seeing more consolidation in terms of households. We’re seeing more multigenerational living. I think what we are concerned about is that the normalized level of demand is being clouded, which is creating this perception that we don’t have enough inventory because of all the second homes that people now own, as well as investors, just driving up pricing. 

If you’ve got iBuyers and you’ve got fix-and-flip buyers, and you’ve got private investors trying to diversify their position away from just owning equities, you’re going to have a lot more difficulty delineating true primary demand versus what I call just non-primary demand.

Would a jump in rates do more than depress affordability? Would it dissuade homeowners with low rates from trading up?
The terrible Fed policy of continuing to purchase mortgage-backed securities at $40 billion a month has kept rates at artificially low levels. The backlash of that is it’s going to impact mobility because when you look at the number of homeowners that are locked in, not at 4%, but below 4%, we’re talking almost 70% of mortgage holders. Right now, the benefit of the arbitrage is still there. If you can buy a home and get a rate lower than where you were locked in at, and you have a higher home price that you have to digest, that’s offset by the lower rate. If you have higher home prices plus higher rates, it just disincentivizes mobility.

Which homebuilder markets are you most concerned about?
Where all of the iBuyers are, where all the build-for-rent guys are, where all the for-sale guys are building. Those markets are the trifecta that are much more at risk. Phoenix, No. 1. Austin, Dallas, Houston and, to a lesser extent, Atlanta, the Carolinas.

Are we heading for a crash?
There are going to be corrections. And I think there are going to be corrections that are more pronounced if rates go higher.  I certainly would be concerned if I was buying a home today in, let’s say, the Phoenix tertiary market in a higher-rate environment.

This article was provided by Bloomberg News.

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