This spring, homebuyers had limited options regarding the resale market, so they quickly worked to buy new construction homes that became available. This is a trend that will likely continue throughout the summer.
According to National Mortgage News, builders are feeling positive right now because they’re providing houses that are getting all the interest—the new inventory on the market.
There was a 12.2% increase in the sales of newly-built homes in May. In April, the rate was 680,000, which went up to a seasonally adjusted rate of 763,000 units in May. That’s 20% above levels a year ago and significantly above the consensus expectations from Bloomberg—their expectations were 675,000 units for May.
Builders indicated what we see in these increased sales when they did their most recent earnings calls. Increasingly buyers are looking at new homes because there’s an ongoing shrinking in the inventory of previously-owned homes.
Builders are seeing the incentives to get started more quickly on new construction in the face of the low share of previously-owned homes.
According to the Census Bureau, construction of single- and multi-family homes went up 21.7% to a rate that was seasonally adjusted to 1.631 units for May. Permits for new construction homes and housing starts also showed gains month-over-month.
The increase in future inventory gives weary buyers some options, as many current homeowners feel trapped because of interest rates, making them reluctant to list their homes.
According to the National Association of Home Builders, over one-third of homes on the market were new construction this past spring.
Even so, there’s still a deficit of available homes on the market.
Zillow did its study and found that as of 2021, there was a deficit of 4.3 million homes in the U.S.
Another potential solution that some buyers are eyeing is accessory dwelling units. These small, manufactured homes can make housing more affordable overall.
Some people are starting to see that in the face of such significant limitations on housing inventory, paired with the increased quality of today’s manufactured homes, it’s an appealing option.
Real estate professionals and analysts have spoken about the increased demand for new construction homes, citing the piqued interest not only in new construction itself but also in the incentives that a builder might be able to offer. A builder could have empty models and want to sell them quickly, so they offer incentives like mortgage rate buy-downs.
In May, the construction of new homes in the U.S. increased for the second month.
Even though new construction appears to be performing well, there’s still the ongoing affordability issue that buyers are grappling with. The National Association of Home Builders and Wells Fargo Opportunity Index showed that 45.6% of new and existing homes sold between January and March were affordable to families earning an income of $96,300. It was close to the lowest since this data started being tracked.
Home prices also grew by 0.5% in April, so the affordability problem could worsen.
Finally, while builders see a rosier picture than we might have thought would be the case a year ago, there are still challenges. For example, labor shortages continue to be a headwind for builders. The construction industry has a shortage of more than 400,000 workers, leading to delays and higher costs.
Regardless, new construction and building activity is the only ways inflation will be reduced and unmet demand will be achieved.
