At the midmonth NAHB Spring Leadership Meeting & Legislative Conference in Washington, DC, conversations with developers all had a similar throughline. Maybe they had a deal under construction, usually a smaller deal, almost always an affordable project or historic rehab, any deal with subsidies to make it work. No one we talked with had a market-rate project under construction. Everyone, though, had a pipeline of deals waiting to go — often hundreds of millions of dollars in projects stalled by construction costs and interest rates.
The conversations about construction costs were also remarkably consistent. Some material costs, such as lumber, copper, and concrete, are down. Labor costs are steady, and overall costs have plateaued. Contractors are holding their prices. Subs (particularly in “front-end” trades like site work) are calling and looking for work. Some problems persist – notably, lead times for electrical switch gear – but things have “settled down.”
As for interest rates, the NAHB economic team made a presentation titled “Waiting for Lower Rates.” There, the outlook was pretty positive. Higher-than-expected immigration has led to population growth, buoyed the labor market, and driven economic growth. Declines in personal savings, consumer spending, and slowing job growth point to a soft landing.
While everyone would like to see more than one rate cut by the Fed this year, NAHB’s outlook with regard to rate cuts in 2025 is remarkable. NAHB expects six (yes, six) rate cuts next year, each 25 bps. If that’s true, now is the time to get ready to shift from surviving to thriving.
As one developer shared last week, FHA financing is “about the only game in town,” as banks are on the sidelines.
FHA offers great loan products with lower rates, longer terms and amortization, higher leverage, and no recourse. However, the process takes a while. With rates expected to fall throughout 2025, now may be the time to look at those projects in the pipeline and start to move forward.
Starting now could mean getting in the ground next year and leasing in early 2026, well ahead of your competition. Starting the process with AGM and FHA is easy and free (well, free plus the cost of a market study).
At AGM, we do our best to keep developers informed of proactive measures you can take to get the most from every deal. If you have a project that has been on hold, let’s talk about it. We can look at it at various interest rates and figure out what makes sense.
Please schedule a call if you have questions or want to discuss your next project.
