Consumers are still hampered by housing affordability, with some buyers of new homes stymied even as they've grown to accept elevated borrowing costs, according to an industry analyst who toured multiple developments in two growing Sun Belt markets.
Demand has not picked up after the election in the Orlando, Florida, metropolitan area, particularly for first-time buyers, while sales were better than expected in the Phoenix region, wrote Carl Reichardt, managing director of the global financial services firm BTIG, in separate reports. Reichardt recently visited 15 Orlando-area developments and 14 in and across Phoenix.
Orlando is the fourth-fastest-growing metropolitan area in the nation, adding nearly 55,000 residents between 2022 and 2023, according to the latest figures from the U.S. Census. Phoenix ranks eighth with more than 49,000 new residents. Dallas is first with more than 152,000 new residents.
The new home market in Phoenix is competitive, with few price increases since summer, according to Reichardt. What's more, smaller homes were outselling larger ones.
"While affordability remains a challenge, sales managers report that customers 'have become accustomed' to higher mortgage rates, but that the single largest barrier to purchase is not income or down payment, but credit score," he wrote.
From the Homes.com blog: What Credit Score Do You Need to Buy a House?
Higher mortgage rates long have been blamed for the sales slowdown. Rates climbed back above 7% for the first time since May, mortgage giant Freddie Mac said last week.
Builders use incentives
Homebuilders in Orlando and Phoenix continue to use sales incentives, including mortgage-rate buydowns, according to Reichardt. In a buy-down, a builder uses sales from profits to lower the interest rate for a year or two, if not the life of the loan.
"Entry-level buyers struggle to meet mortgage payments, even when bought down, and often reject purchasing a home for cheaper rent," Reichardt said of the Orlando market. "Move-up and active adult buyers are less impacted by the rate curve and market dynamics there remain relatively strong."
Reichardt visited Orlando developments of D.R. Horton, KB Home, PulteGroup and other builders. In Phoenix, he toured housing projects of those three builders, as well as Toll Brothers, Lennar, LGI Homes and Taylor Morrison, among others.
The analyst explained that buyers in Orlando have replaced "waiting until after the election" with "waiting until after the inauguration" as the reason to hold off for now. At some Phoenix developments, sales managers said "election hesitancy" also was playing a role and noted that Arizona appears to be polarized politically.
"As one sales manager put it, 'Customers on both sides thought if the other side got elected the world would come to an end," Reichardt wrote. "When it didn't, business got better."
Prior to BTIG, Reichardt was a homebuilding and building products analyst at Wells Fargo Securities. He also has worked at Banc of America Securities.