Financing solutions from home builders
Financing solutions from home builders

Financing solutions from home builders

RE+D magazine

Two of the housing market's biggest enemies remain mortgage interest rates and inflation. Despite high labor and land costs—especially in major urban centers—many developers are still planning to increase their footprint, with the housing market remaining at the center of global real estate well into 2024.

So far this year, the SPDR S&P Homebuilders ETF (XHB) has gained more than 48% — and the rally in construction stocks is expected to continue, albeit in a more "softer" way.

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Data compiled by BTIG unveil that the 20 listed homebuilders control nearly 2 million units, and today's average new home sales price of $487,000 could net them about $975 billion in future revenue.

However, the housing market is fighting its own "battle" with affordability that may not change as much as buyers would like.

One of the most effective ways to deal with rising prices that mainly affects new buyers is for builders to intervene in the ever-increasing financing costs with mortgage rate buyouts where the builder pays the cost upfront to lower the loan rate.

For example, Lennar (America's second-largest homebuilder by sales in 2023) offers a "fixed mortgage rate of 4.75%. This is much lower than the average contract rate for 30-year fixed-rate mortgages that fluctuate to 6.84%.

The increased costs are balanced through share prices, profitability, costs and housing market dynamics.

(Source: Yahoo Finance)