Rick Palacios Jr.

Homebuilders got a reprieve post-midterms, but today’s CPI print and hawkish Fed commentary are throwing cold water on hope for housing in 2027.

Homebuilders we survey hit new cycle lows on almost all key metrics in October, with unsold inventory rising again (chart below).

There were 56,000 new homes sold in September (-3.4% YoY, NSA). Subtract the 1,233 homes Lennar sold to Millrose, and the decline shifts to -5.6% YoY.

Homebuilder bulk sales like this will likely accelerate in 4Q26, keeping sales from falling off a cliff. $LEN $MRP

Housing’s affordability headache ahead of midterms.

Since late-2022 when rates first jumped, homebuilders have been pulling forward sales with costly mortgage rate buydowns, often at ~4% to 5.5% 30-year terms. Many of those pulled forward buyers simply could not qualify at today’s 7%+ market rates, or even 6% rates.

I bring this up because those artificially pulled forward homeowners are now sitting on ironically a homebuilder self-induced lock-in effect, weighing on both new and existing home sales this cycle, and will continue to going forward should rates normalize at ~7%.

Just one example of how different this housing cycle has been, and some of the unintended consequences of buydowns.

Big net outflow of high-income/high-net worth households in the Northwest, according to local homebuilders we just surveyed.

Recent tax policy shifts in Washington state are a major factor, compounded by tech-sector job losses in Seattle, H-1B visa chaos, etc.