A year ago, business was booming for Touchstone Living Inc. The Nevada builder had a list of 639 qualified buyers who wanted homes in its development about 15 miles North of the Las Vegas strip.
Today, that list has shriveled to about 30. Many would be buyers are unable to qualify for loans since mortgage rates have surged to 6.94%, their highest level since 2002 and more than double the rate of a year ago.
Little of this is good news for Touchstone or its owner, Tom McCormick. But Mr. McCormick said his new company has less debt and fewer lenders than his former company did heading into the 2007-2009 recession, and has grown more slowly and bought less land.
“I’ve learned my lesson,” he said. Still, “I’ve never seen it change this fast,” referring to the rapid decline in sales.
This year’s rising mortgage rates, said Mr. McCormick, slashed the number of would-be buyers for his homes. “They still had the good credit, they still had the good job. But rising home prices and rates just squeezed them out of the market.”
The summer slowdown was a scary reminder to Mr. McCormick of how easily the market can turn. He was the owner of Astoria Homes, one of the biggest privately owned home builders based in Nevada during the early 2000’s housing boom. He built up to 1000 homes per year. When the sub-prime mortgage crisis erupted in 2007, Astoria shrank from 170 employees to 3, including Mr. McCormick. A few of its lenders were taken over by the FDIC, and Mr. McCormick, who had made personal guarantees on Astoria’s debts, spent years settling them.
He is hoping Touchstone’s prices give his company an advantage in a slow market. Their homes sell for between about $315,000 and $433,000. The region’s median new home closing price in August was about $492,000, according to Home Builders Research. In September, Touchstone decided to start renting out some of its properties because it expects home-buying demand to stay slow.
“People still want to own homes, but they simply can’t afford it,” said Mr. McCormick. “So the business plan has to change.”
Reported by Nicole Friedman in the Wall Street Journal on October 24, 2022.
