Sheryl Palmer recently appeared on CNBC’s ‘Squawk Box’ to discuss the prevailing trends in the real estate market. Palmer is the CEO of Taylor Morrison, one of the biggest real estate builders in the United States.
In the past 18 months, mortgage interest rates have fluctuated widely. However, this means different things for builders and buyers. Overall, real estate consumers seem to be expressing apprehension, as they are unsure of what move to make as the rates keep going higher.
According to real estate analysts, mortgage rates hovered around 6% during the fourth quarter of last year, which was an appropriate time for buyers to grab home-buy deals. However, the tables have turned, as the rates have recently spiked to as high as 8%.
On Squawk Box, Palmer acknowledged that the rise in mortgage rates obviously surprises home buyers. She explained that Taylor Morrison is trying to get its customers comfortable prospecting for a home, even in times like this. To achieve this, the company will deploy financial tools and incentives that will keep its mortgage rates at 5%.
When asked what tools Taylor Morrison deploys to provide customers with an in-house rate, Palmer gave mostly generic responses. She was probably trying to protect organizational strategies. However, there were a few takeaways from her response. One, Palmer clarified that they don’t stereotype their customers, with the full understanding that they all have peculiar needs.
So, when providing a customer with coupon rates, Taylor Morrison considers several factors, such as whether the consumer is a new home buyer and whether old homeowners have any equity in their mortgage portfolio.
Sometime last year, the rates went as low as three percent and are currently hovering around 8 percent. Palmer had something to say about this trend. She said, “As silly as it is, they went to 8% so quickly that I think it kind of reset the customer’s mind so that they don’t expect that they are going back to 3.99%.”
One of the CNBC hosts noted that there is still a high demand for new homes. However, it looks like builders are playing it safe. In response, Palmer clarified that builders like Taylor Morrison are still trying to match up consumer demands. However, she further stated that her company’s inventories, for both new and resale homes, show that the kickback margin is quite low.
So, in a bid to satisfy the consumers and prevent them from bearing the brunt of high mortgage rates, Taylor Morris only makes a very slim profit.
The question of risks involved in purchasing large swaths of land for home development also came up. Palmer however points out that mortgage rates do not affect this portion of real estate development as much. Why? At Taylor Morrison, they tend to treat lots as the asset that they are, and hold them for a couple of years.
All the resources that go into home development seem to be in jeopardy, and their cost getting higher by the day. However, Palmer mentioned that the availability of skilled labor is seeing some improvements.