Merchants Subdivision Experts Navigate Volatile Housing Market

March 6, 2023

By Steve Dorenkamp, SR. Vice President, Specialty Solutions

Volatility in the housing market can cause many sureties to shy away from providing developers subdivision bonds because of the greater risk, but Merchants Specialty Solutions sees positive signs for the long term resilience of the housing market. Merchants has the time, expertise, and experience to help developers and their agents obtain subdivision bonds, ensuring completion of storm drains, streets, sidewalks, lights, and all the public infrastructure guaranteed by subdivision bonds.    

Our subdivision experts see:

A surge in buyer demand.  Fueled by the recent decline in mortgage rates, homebuyers are finding this an opportune time to enter the market. Mortgage rates are continuing to fall from a record high of 7.08 percent in November of 2022, easing some of the risk of obtaining subdivision bonds

Buying power: As buyer demand experiences an uptick, prospective homeowners are finding themselves with more negotiation power when it comes to purchasing a new property. Lawrence Yun, National Association of Realtors chief economist stated: “Homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price.”  This statistic can bring some light to future homeowners who are on the hunt for a property that is both within their budget and suits their needs.

Easing of Interest rates: Rising interest rates have created complexity for both buyers and sellers. It is worth noting that rates are continuing to fall after a record high of 7.08 percent to an average of 6.12 percent. That is still substantially higher than the 3.69 percent we experienced year ago.  To combat the effects of rising interest rates, about 75 percent of builders are providing mortgage rates that are hard for buyers to find elsewhere.

Housing inventory not enough to meet demand: Total inventory at the end of January 2023 was 980,000 units. This number is only up 2.1% from December of 2022, but 15.3% from a year ago. Despite the increase in inventory, the number is still half of what it was prior to the pandemic.

Builders have been very cautious about their pace of construction, leading to a shortage of homes for sale.  The National Association of Realtors expressed that in December of 2022, there was a nearly three month supply of homes for sale, but in February of 2023, that figure was down to a two month supply.  Homebuilders have slowed since the last economic downturn and are not looking to overbuild like they have in the past. Today, they simply are not building enough to satisfy demand.

 ‘Repeat’ crash NOT expected: Economists agree that while home prices could fall, a decrease is unlikely to be as severe as in past economic downturns. As compared to homeowners in 2008, today’s homeowners’ mortgages not only reflect their excellent credit, but also demonstrate a considerable amount of equity that they didn’t have in the past.  Principal economist at CoreLogic, Molly Boesel, states that “…generous amounts of home equity will protect many borrowers from experiencing the type of foreclosure activity seen during the Great Recession.”

With all of these factors in mind, Merchants Specialty Solutions is a ready market for subdivision. We have tools designed specifically to help developers and their agents receive surety credit with ease and efficiency, including:

-          A quick application/indemnity agreement for bond limits up to $2.0 million.

-          A streamlined subdivision questionnaire to gather information more efficiently.

-          Convenient e-signature options in order to secure indemnity.

Unlike many of our competitors, who merge their subdivision business into larger departments, we have a division specifically devoted to this work with dedicated staff and specialists. 

Specialty Solutions is here to help.  Whether the need involves a first time bond or greater program capacity with better terms, Merchants provides knowledge and personal service throughout the entire process.  Have questions regarding subdivision bonds?  Contact Merchants Specialty Solutions or visit our subdivision page. 


For more information about how this relates to the March 2023 banking collapse click here.


Sources for this article can be referenced here.