Housing

Billionaire Stephen Ross: Condos in big cities are 'overbuilt' and higher rates aren't helping

Key Points
  • There's an oversupply of luxury condominiums in most major cities and rising interest rates are making it harder for buyers to make deals, the developer says.
  • "Whenever you increase rates, you kind of reduce the affordability issues, and therefore you limit your market," adds Ross.
If builders have money, they're gonna build: Stephen Ross
VIDEO3:2203:22
If builders have money, they're gonna build: Stephen Ross

There's an oversupply of luxury condominiums in most major cities across the country and rising interest rates are making it harder for buyers to make deals, billionaire real estate developer Stephen Ross told CNBC on Thursday.

"Today the condo markets ... are overbuilt in most areas of the country," Ross said.

That includes the New York City market, where Ross, founder and chairman of Related Cos., competed with President Donald Trump when Trump was a developer in his pre-White House years.

"Whenever you increase rates, you kind of reduce the affordability issues, and therefore you limit your market," he said in an interview with Diana Olick on "Power Lunch." "In soft markets, you want as broad a market as you possibly can."

The homeownership rate among millennials is lower than that of their parents and grandparents due to a number of personal and economic factors.

The rental market, on the other hand, has been "really strong across the marketplace" as more young people would rather rent than buy today, said Ross, who also owns the Miami Dolphins.

"I think that all goes back to the housing crisis when they saw what happened to their families, you know, in 2008, and the dislocation that that occurred," he added.

Last week, mortgage application volume was down 22 percent year over year, and purchase volume was down 3 percent in that same period. In addition, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances was at its highest level since 2010.

"It could [get worse], because there is a lot of supply," he warned.

On Thursday, Los Angeles-based homebuilder KB Homes shares fell nearly 18 percent, in one of its worst days of trading in more than 26 years, before closing down more than 15 percent. And the industry is on track for its worst year of trading since the 2008 crisis.

"So those rising interest rates will certainly have an impact on the number of buyers and what they're looking for and what they can afford," Ross said.

Developers, for the most part, have been unaffected by the rate hikes and are enjoying "pretty low rates than what we're used to." They also have access to alternative sources to fund real estate developments, Ross explained.

"If they have money, they're going to build," he said.

Ross' Related Companies is building the $20 billion Hudson Yards megadevelopment slated to open next year.

Clarification: This updated version of the story makes it clear that Stephen Ross was talking about condos in big cities being "overbuilt."