U.S. consumers are buying smaller houses and taking advantage of builder incentives to deal with affordability concerns, David O’Reilly, CEO of developer Howard Hughes Holdings, told CNBC.
Since the 1980s, new houses have achieved a price premium to existing homes of about 16%, O’Reilly said in an interview with the cable news outlet a day after disappointing U.S. sales figures were released. But in recent months, he noted that the premium dropped to 7%.
The latest new sales figures show “that's actually flipped on its head,” O’Reilly said in the interview. “New home sales are actually less expensive on a median home price than resales, and I think that shows the consumer adjusting to a smaller home, taking less space and trying to get back into that range of affordability.”
Some existing owners don't want to let go of the historically low mortgage rates they secured during the pandemic by selling while rates are high. That has buyers turning to newly built houses to capitalize on mortgage-rate buy-downs. When a builder buys down a mortgage rate, it uses profits from sales to lower the interest rate paid by the buyer.
“Between that smaller home and the rate buydown, I think that things are a little bit better than what the headlines may report,” O’Reilly told CNBC.
Howard Hughes, based in The Woodlands, Texas, is a master planner, developer and property owner in some of the nation's fastest-growing areas. In responding to another question about whether Sun Belt housing markets have cooled, O’Reilly said his company hasn’t experienced slowdowns in such markets as Arizona, Nevada and Texas.