With supply limited, more home buyers turn to new construction
More Americans are turning to new home construction as existing inventory remains low and mortgage rates begin to stabilize, the National Association of Home Builders (NAHB) said.
Sales of newly built, single-family homes increased in April, reaching the highest level since March 2022. The NAHB’s announcement arrives it celebrates National Homeownership Month in June.
“Buyers are purchasing new homes so they can start investing in homeownership now instead of waiting for an existing home to come on the market,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “Builders want to meet buyer demand; however, high construction costs and labor shortages remain persistent challenges for the residential construction industry.”
Limited existing inventory has placed a renewed emphasis on new construction. In addition, new home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, the NAHB said.
Current interest rates have more than doubled from 2021. As a result, the supply of existing homes is incredibly low.
As of yesterday, the average rate on a 30-year fixed mortgage hit 7.24% compared to 7.20% a week ago. This is the highest level in six months.
Rates are also telling current homeowners to stay put in their house as opposed to purchasing a new property at a much higher mortgage rate.
New single-family home sales in April increased 4.1% to an adjusted annual rate of 683,000 compared to the revised March rate of 656,000, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development reported.
Sales are also 11.8% above the April 2022 estimate of 611,000.
But Lawrence Yun, chief economist of the National Association of Realtors (NAR), said limited housing supply played some part in April’s flat pending home sales. Yun also says more homes need to be built for an uptick to happen.
The Pending Homes Sales Index (PHSI) remained at 78.9 in April with no change from the prior month. Year-over-year pending transactions fell 20.3%, however.
With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ searches in the quarters ahead, the NAHB said.
The NAR’s most recent PHSI indicates that there is just a 2.9-month supply of homes at the current sales pace.
The housing environment is fueling cautious optimism among builders; however, they continue to face additional challenges in meeting the demand for new construction.
Residential construction obstacles include shortages of distribution transformers, other building materials, and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates.
On June 7, builders from across the country will meet with lawmakers on Capitol Hill in Washington, D.C., to discuss solutions for ramping up distribution transformer production and investing in skilled trades training programs nationwide.
Transformer delays and limited growth of the skilled labor workforce aggravate the nation’s housing affordability crisis.
In an NAHB analysis of home buyer perception in the first quarter of the year, the inability to find an affordable home remains the most common reason buyers looking for three months or more are unable to make a purchase.
