It’s still a golden age of homebuilding, according to one top real estate CEO. Here’s why

Howard Hughes’ chief executive called this year the golden age of homebuilding about four months ago—and he hasn’t changed his tune despite the recent resurgence in mortgage rates that’s already dampened some forecasts.

Earlier this week, David O’Reilly, who held a couple roles at the real estate development and management company before becoming its chief executive officer, was asked on CNBC: “You call this the golden age of homebuilding. What contributes to that assessment?”

His answer was simple; “we have demand that’s meaningfully outpacing supply,” O’Reilly said. He mentioned millennials who’ve delayed their household formations, the thousands of people turning 35 every day, and wealthy retirees who want to move closer to their children and grandchildren. A lot of them are swaying toward newly built homes.

“It’s that unique confluence of strong demand, no supply because there’s no resale inventory, and large public builders with a meaningful advantage through those rate buydowns,” he explained.

So let’s take a step back for a moment. When he said there’s no resale inventory, he’s referring to the lack of existing homes for sale. The reason is that mortgage rates shot up from prior levels, triggering the so-called lock-in effect. It keeps people from selling their homes because they don’t want to lose their below-market mortgage rates, which a lot of people have.

During the pandemic, and years before, mortgage rates were really low; at one point the average 30-year fixed mortgage rate was well below 3%. But inflation became a problem that the Federal Reserve had to fix. The Fed raised interest rates and mortgage rates followed, reaching a more than two-decade high in October last year. And they’re still high. Weekly readings show mortgage rates are 7.17%; daily readings show they’re at 7.45%. Who wants to give up a below-3% mortgage rate for one that’s edging closer to 8%? Nobody, which is why no one is selling their home and existing home sales fell to their lowest point in almost 30 years.

But sales of newly built homes have held up fairly well, and that’s where mortgage rate buydowns come in. Homebuilders have the margins to offer the incentive, which reduces a buyer’s mortgage rate either temporarily or for the lifetime of the loan. In March alone, new home sales were up on a monthly and annual basis; existing home sales on the other hand, were down on both. Still, higher interest rates are hard for all real estate, but it seems the new home market is handling the current economic environment better—and the same could be said throughout last year too. Historically, new home sales only made up 10% of total home sales; last year, they made up almost 30%, First American’s deputy chief economist, Odeta Kushi, told Fortune at the time.

But it isn’t simply mortgage rate buydowns, builders are building smaller homes too. It’s to account for the affordability crisis, but also to keep their businesses alive, as Fortune’s recently reported: They need people to buy homes. And you could argue homebuilders are doing pretty well because they know that.

Howard Hughes is so bullish on new homes that it’s developing Teravalis, a 37,000-acre community in the Phoenix West Valley. Howard Hughes partnered with four homebuilders, and in the end, the hope is that it’ll be 100,000 homes and 55 million square-feet of commercial real estate. It has the potential to be home for 300,000 people, according to the company.

“This will be a city, when we’re done, about the size of St. Louis,” O’Reilly told CNBC. “There’s pent-up demand, and Phoenix is…relatively affordable compared to many other cities.”

But here’s the thing. There are metropolitan cities where you can build communities such as that one, or even where you can simply build enough homes to meet the population (particularly in the Sunbelt). But then there’s places such as California, where it may not be the golden age of homebuilding as years of policy failure and unfettered local control have made it extremely difficult to build anything in the state, or its single-family home neighborhoods.

This story was originally featured on Fortune.com