Executive Summary
KB Home reported a 7% average home price decline in Q3, while Lennar dropped 7-8%, marking a critical shift from mortgage rate subsidies to outright price cuts. New home inventory has reached levels approaching the 2008 crisis, forcing builders to carry unsold units on balance sheets. This represents a fundamental change in builder strategy—moving beyond 'buy downs' (subsidized mortgage rates) to actual price reductions. Wood argues this price capitulation, combined with oil prices down 15-20% year-over-year and potential Venezuelan supply additions, creates a deflationary cocktail that markets haven't fully recognized. The housing sector represents nearly 50% of CPI when combined with energy, suggesting broader disinflationary pressures ahead. Trump's announced $200 billion mortgage bond purchase program, while modest relative to total mortgage debt, signals policy support for housing affordability. The convergence of builder inventory pressure, policy intervention, and falling input costs suggests housing could lead a broader economic rebound, particularly as the 'rolling recession' in manufacturing and small business begins to reverse.
Key Insights
what The Hosts said“KB home and its third quarter report reported a 7% average home price decline. Lanar I think was down 3%. No, I'm sorry, it was down 7% to 8% as well. And Lanar was down 3%. So they are now going beyond what was called buy downs. Meaning they subsidized the mortgage rate. Now they're actually cutting prices.”
what The Hosts said“This tells you there are a lot of new homes for sale and builders are carrying them on their balance sheets. Now they're starting to cut prices... I heard one of the commentators on the business news channels today saying, there are no houses for sale. That's not true.”
what The Hosts said“So now the reason I'm focused on oil and housing is you take those two in the CPI shelter and oil. And you're up to nearly 50% of the CPI, all of shelter, including energy and then oil. And gasoline by themselves.”
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