Homebuilders are attempting to meet the demand left by so few existing homes on the market, but high interest rates and inflation are keeping them from fully rel💮easing that pressure.

New homes accounted for nearly 31% of homes on the market–the largest portion of any third quarter on record, according to Redfin data released last week. It’s estimated the inventory of new homes is about of what’s needed to meet current demand, a gap that homebuilders are looking to step in to as residential construction spending in September was up 0.6% to $872 billion.

“We absolutely need more homebuilding activity,” says Nick Bailey, president and CEO of RE/MAX. “New construction slowed to a crawl after the Great Recession, and it hasn't returned nearly enough to fill in the gap.”

Increasing interest rates are 𝔍having far-reaching impact on homebuilders beyond just pumping mo🧸rtgage rates.

Homebuilders Are Facing Their Own Credit Crunch

Homebuilders have been having a harder time getting credit to acquire and develop land, according to a survey from the National Association of Home Builders (NAHB).

In addition to pushing interest rates above 8.5% for land acquisition and development, lenders are reducing the amounts they’re willing to finance, builders said. They also reported lenderꦺs requiring personal guaraꦆntees or collateral not related to the developments.

Constructi🎀on Material Prices Have Fallen From Their Peak, But Are Still Elevated

Another cost impacting the ability to deliver new homes has bee💮n construction material cost increases, according to Derek Wyatt, a managing dir☂ector at RCLCO Real Estate Consulting.

According to the Producer Price Index, which is often seen as a precursor to consumer inflation measures, prices for homebuilding materials spiked✱ during the COVID-19 pandemic and have not come down from their peak.  

Wh🗹ile many of the price bumps were originally pushed by supply chain issues during the COVID-19 pandemic, price🍬s have not fallen since those issues have eased. 

“Those increases have slowed, and there's hope that the costs may decline, but it's still putting pressure on all of those builders,” Wyatt said.