This one’s from the trenches.

This weekend I talked with a representative from one of the major national homebuilders. They have platted, shovel-ready developments that they’re putting on hold until rates improve. The last time I saw builders sit on ready-to-go lots like this was 2007, heading into the Global Financial Crisis.

Here’s the cause and effect as I see it. If rates don’t give, affordability keeps falling. Meanwhile, inventory builds from sellers who have to sell: relocations, hardships, downsizers, upsizers, life events. Those don’t stop because rates are high.

The one sticky factor is existing mortgages. Many owners are locked into low rates, so anyone who can afford to stay put will hold their home and move less. That slows the flow of listings.

But the net effect is still more inventory and fewer qualified buyers. When builders stop building, it’s not because they expect demand to pick up next quarter.

My read is that we’re likely headed into a recession soon.

That’s both the bad news and the good news. Recessions are hard on overleveraged owners and anyone forced to sell into a soft market. They’re also where opportunity shows up. Downturns are when patient, well-capitalized investors get to buy cheap, or more importantly, buy right.

Keep your powder dry, underwrite conservatively, and be ready when the deals come.

Curious what others are seeing. Are builders in your market pulling back too?

—Kip Adkins, Diversified Financing Solutions