As rising interest rates affect home building in Dallas-Fort Worth and across the U.S., Dave Flitman, CEO and President of Dallas-based construction products supplier Builders FirstSource, said he believes strong demand from millennials and a decade-plus of underbuilding will carry the housing industry through hard times ahead.
“I believe the industry will continue to grow,” Flitman said in an interview with the Dallas Business Journal. “There may be some short-term pressure that may slow things for a bit. But I don’t see anything close to a major downturn.”
The rate on the 30-year fixed mortgage increased to 5.3% this week, according to Freddie Mac, the highest it has been since July of 2009. Rates have climbed over a half-point in the last seven weeks and are 2 percentage points higher than they were at the start of the year.
Typically, higher rates put a damper on new housing sales because they raise the costs to potential buyers. Flitman said believes that millennials will be undeterred nonetheless.
During the housing crash of 2008, there were about 23 million people ages 30-35, he said. Now there are about 27.5 million people in that prime homebuying age range, and by next year, that number will jump to 29 million. Builders in the U.S. since 2008 have also constructed about 4 million fewer homes than demand called for.
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“It would take a decade of housing starts at the same level as last year to deal with that backlog,” he said. “Even at the same build rate for last year, we’re still not building enough housing for the demand.”
If home prices continue to rise, Flitman said that home builders have “knobs” they can turn to further drive up demand, such as shrinking the size of the home, changing some of the amenities, or buying down interest rates.
Builders FirstSource reported record sales and earnings in its latest fiscal quarter on Tuesday, citing a sales increase of 36.1 percent to $5.7 billion in the first quarter. Net income soared to nearly $640 million, a more than 270 percent increase compared to the first quarter of 2021, according to the publication.
Company executives attributed the strong quarter to a 15% increase in core sales spurred by continued strong demand for single-family housing, and if demand slows slightly, Flitman said he thinks it might mark a healthy development given the persistent supply-chain problems homebuilders continue to face.
“There may be a near-term air pocket. If things would slow a little bit, we’re still having significant supply chain challenges across the industry. It might be a little bit of time to catch your breath on that”, he said.
[Dallas Business Journal] — James Bell