With a dearth of existing homes on the market, builders have been ramping up production to meet buyer demand.
Newly built single-family properties comprised a record share of homes on the market in the second quarter of the year, making up nearly one-third of housing inventory nationwide, according to new research from Redfin. New-home sales typically make up only about 10% of the market.
The National Association of REALTORS® predicts that new-home sales will rise 12.3% this year and 13.9% in 2024 as builders ramp up construction and offer more incentives to attract buyers. With the availability of existing homes at historical lows, more buyers are turning to the new-home market for greater choices. Many current homeowners remain unwilling to sell and trade in the low mortgage rate they secured a few years ago for today’s higher rates.
“New construction is the only option for many buyers,” says Shauna Pendleton, a Redfin real estate agent in Boise, Idaho. “A lot of buyers want to secure a home now because they’re worried prices are going to go back up, and new construction is more plentiful, with perks that are hard to pass up.” In Boise, new homes made up nearly 40% of the single-family inventory in the second quarter, according to Redfin’s report.
Builders Attract Buyers With Incentives
Fifty-five percent of home builders say they’re using incentives to bolster sales, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Those incentives may include buying down mortgage rates or offering extra perks, such as free home upgrades. About a quarter of builders say they’ve reduced their prices, with an average price decline of about 6%, the survey shows.
Builders are still cautious, too. They’re limiting how much inventory they add: Single-family new construction is still down about 17% compared to a year ago. Builders cite rising mortgage rates, higher construction costs, labor and lot shortages and ongoing material shortages for subduing their outlook, according to NAHB’s and Wells Fargo Housing Market Index. The index showed builder confidence slipped this month.
Where Building Is Picking Up
Housing starts have rebounded significantly over the last few months. In July, new-home construction reached a seasonally adjusted annual rate of 1.45 million, with single-family starts jumping nearly 7% at a seasonally adjusted annual rate and up by 9.5% compared to a year ago, according to data from the Census Bureau and the Department of Housing and Urban Development. The increase in homebuilding was led by the West, where single-family starts were up about 29%, followed by a 12.5% uptick in the Midwest.
“With many homeowners choosing to stay in their existing home to preserve their low mortgage rate, demand for new-home construction pushed up single-family starts in July, even as builders continue to struggle with increased uncertainty stemming from rising rates,” says Alicia Huey, the NAHB’s chairperson.
Redfin’s second-quarter report shows that new construction is the most robust in the following metros:
- El Paso, Texas: 52% of market
- Omaha, Neb.: 46%
- Raleigh, N.C.: 42%
- Oklahoma City: 39%
- Boise, Idaho: 38%
Meanwhile, the following metros posted some of the largest upticks in the percentage of newly built homes in the second quarter:
- Tulsa, Okla.: 33% of single-family inventory, up from 20% a year earlier
- Richmond, Va.: 35%, up from 23%
- Albany, N.Y.: 24%, up from 13%
- Phoenix: 26%, up from 15%
- Elgin, Ill.: 25%, up from 15%