In the latest episode of Trader Talk, industry expert Stephanie Link, Chief Investment Strategist at Hightower Advisors, and host Kenny Polcari dissected the persistent structural challenges facing the U.S. housing market. Link emphasized that regardless of current interest rates, the fundamental issue remains one of supply and demand. “We’re 5 million homes short in this country,” she noted, pointing out that for 15 consecutive years, home builders have consistently underproduced. This underproduction is partly due to the high inflationary cost of land and the reluctance of builders to invest in entry-level housing, despite the growing pool of 5 million millennial first-time buyers.
Polcari questioned why builders aren’t incentivized to focus on more affordable properties—homes in the $500,000 to $700,000 range—instead of luxury mansions. Link explained that the industry follows an 80/20 rule, where builders concentrate on projects that offer better pricing power and margins rather than saturating the market with lower-priced homes. “Home builders would rather buy back stock than invest in land,” she said, highlighting that they are cautious not to flood a cyclical market.
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Polcari added that while markets like West Palm Beach are booming with high-rise developments, the single-family home segment continues to lag. Both experts agreed that a drop in mortgage rates to around 5% could transform the market, stimulating demand and encouraging builders to address the affordable housing gap. Though not guaranteed, the demand is undeniably there, offering a glimmer of hope for a more balanced housing market in the future.
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This post was written by Langston Sessoms.