By coinnews 
00:00 Speaker A
Builder sentiment is falling to its lowest level since 2023, according to the National Association of Home Builders. Confidence among US builders fell six points in May. That’s more than economists expected. Elevated interest rates, tariff concerns and building material costs all weighing on sentiment. The NHAB, though, they do note that 90% of responses came in prior to the announcement of the US-China tariff pause. So we had to note that here to dig into the number. We’ve got Katie Covert, who is Walton Global EVP of Capital Markets. Great to back have you back here on the program with us. So just take us into your assessment based on the data that we’ve seen come through from NAHB.
01:47 Katie Covert
Yes, I mean, as you mentioned, it’s been a weak spring season, so the the traffic for home builders just hasn’t been there. Historically, 37% of their annual sales are coming from sales completed in February through May. And with the weak spring season, it’s just it hasn’t put a damper on their sentiment. However, we you know, we’re talking daily to our clients, the public home builders, and it really is community and location specific. Some builders are having to really slash prices to get the home counts to get the home counts where they want to be to get the products to move. So they’re dropping to 0% margins, which sounds alarming, but they’re doing what they have to do. Well, on the other hand, some communities are selling very well and they’re in the 30% margin range. So it’s definitely community specific.
03:23 Speaker A
Whose market is this? Is this a buyer’s market? Is this a seller’s market? Where are we at in the the broader kind of map, if you will, as a lot of potential home buyers were waiting for and anticipating that rates might come down further this year. But for the Fed that’s looking through all of the data and saying, hey, we don’t see any real reason to cut and that also not having the impact on interest rates or mortgage rates either. What does that essentially kind of put onto the table for the broader home buyers calculus?
04:32 Katie Covert
Right. I mean, the 30-year fixed today is at 6.91, so remains quite elevated. It is a buyer’s market. If you’re looking for a new home and especially in that entry level home, going to a publicly traded new home community, they will buy down your mortgage rate. They will give you incentives. They want to sell you a house and in some cases they’re slashing prices a hundred thousand dollars. So it’s a good time to buy if that’s the type of product you’re looking for.
05:21 Speaker A
Which of the home builders do you believe is really best positioned for this? Is it the luxury end? Is it the kind of not mass market, but certainly some of the home builders that appeal more to the first time home buyers, easier builds, where and in specific regions, I suppose as well, that they might have the most footprint?
06:13 Katie Covert
Yeah, I mean, the luxury builders are dealing with people that are not really affected as much by mortgages. They’re dealing with many times all cash buyers. So they’re faring fairly well in good locations with good land positions. And then the the large public builders, your top builders are going to fare the best. They have the ability to compress their margins down, to absorb the cost increases from tariffs. They have the ability to bring incentives and buy down mortgage rates. It’s really the small builders. If you’re building less than, you know, if you’re building less than 2,500 homes a year, you’re going to be struggling because you don’t have the ability to compete on the land side, to pay the premium prices for good locations, for lots that are ready to go. And you just can’t buy down mortgage rates. You don’t have the ability to squeeze your margin. So small builders are going to be struggling right now.
07:41 Speaker A
What’s the overall tariff impact from what you’re hearing from home builders right now?
07:52 Katie Covert
Yeah, so we’re hearing 2 to 4% average cost increase of the actual home production. However, they’re not passing that on to the end home buyer at this time just because the the home purchaser won’t absorb that. They’re having to slash prices to get those unit counts.
08:23 Speaker A
We know the spring home buying season has been weaker than normal. What does that set up for this summer potentially?
08:39 Katie Covert
Yeah, I mean, they’re just they’re doing what they can to keep the unit counts going. So they’re going to have to continue to offer incentives, which are about 7% on average across the board. I’m so hoping that, you know, if inflation, if we can get inflation down and get the 10-year down, that will bring the mortgage rates down, and that will certainly help. Stabilizing material costs is also helping as well as we see some of the tariffs settle down.
09:15 Speaker A
Who who’s upholding the home buying market right now? Is it is it the first-time home buyer? Is it the home buyer that is looking for, dare I say, a second property? And I think I know the answer to this, but I need to I need to know how you’re reading through and what’s showing up in your data.
09:49 Katie Covert
It’s definitely the first-time home buyer. That is who is out there, you know, purchasing homes still. The job market is good, so they’re able to get a mortgage credit. Credit is good pretty much across the board. So the first-time home buyers keeping keeping them the market going.
10:15 Speaker A
Katie, great to see you. Thanks so much for joining us, as always.
10:21 Katie Covert
Thanks. You too, Brad.