Interview, Conference Presentation
What’s Ahead for the Housing Market
- A prolonged homebuilding "perfect storm" driven by demand-supply imbalance is anticipated to persist, requiring interest rates and price increases to reach levels that significantly slow the market before affordability pressures become acute.
- Interest rates are projected to rise, with mortgage rates likely needing to reach the mid-4% range, an increase of approximately 100 basis points, to exert a major impact on demand.
- Affordability pressures are expected to be mitigated longer than in previous cycles due to migration trends from high-cost states like New York and California to more affordable markets such as Austin, Phoenix, Florida, and Raleigh.
- Sector fundamentals over the next three to five years are viewed positively, supported by demographic shifts, including millennials reaching homeowning age at 35, dual-income couples earning $200,000 purchasing mid-tier luxury homes, and an expected $35 trillion transfer of generational wealth from those over 70.
- Manufacturing and distribution consolidation is forecasted to continue throughout 2022, driven by the effectiveness of M&A as a scaling tool, while public-to-public home building transactions may face caution due to lagged financial returns from land portfolios.
- Toll Brothers intends to acquire one to two small local builders annually to expand into or strengthen existing markets, while monitoring future opportunities for public-to-public consolidation.
- Strategic M&A activity and equity market operations are expected to remain robust in 2022, with active dialogue and capital raising through IPOs and equity issuances, despite potential risks that could impede progress.
- Technology adoption in construction, including modular and closed-wall systems, is expected to evolve slowly due to transportation costs and pricing challenges, though offsite panel and truss manufacturing remains in use.
- The funding environment for early-stage homebuilding technology is anticipated to improve, enabling capital-intensive businesses to raise more funds and scale more rapidly to accelerate adoption.