Homebuilders Are Not Overbuilding; They Are Catching Up

You may have heard that there are more brand new homes available right now than usual. Currently, roughly one in every three homes on the market is newly built. And if you are wondering what that means for the housing market and your own relocation, here's what you should know.

Why This Isn’t Like 2008

People remember what happened to the housing market in 2008. One of the causes of the crash was an oversupply of homes for sale. While builders only contributed to some of the oversupply at the time, the long-term impact has left some people concerned when they hear that new home construction has increased.

Even though the supply of new homes has grown this year, the data shows there’s no need to worry. Builders aren’t overbuilding, they’re just catching up. 

The graph below uses data from the Census to show the number of new houses built over the last 52 years. Following the crash in 2008, there was a long period of underbuilding (shown in red). And it wasn’t until recently that we finally met the long-term average for how many homes are built in a typical year. No Caption Received

This demonstrates that, despite the recent increase in new build activity, there will not be an oversupply of homes for sale. After more than a decade of underbuilding, there is simply too much to catch up on. If you are still concerned that builders are going overboard, here's something to reassure you. 

New Home Construction May Be at Its Peak for the Year

The latest data from the Census on housing starts (homes where builders just broke ground) and permits (homes where builders can start development soon) shows builders are slowing down their pace right now. Why is that?

They are responding to the continued high mortgage rates and how they are affecting buyer demand. Basically, they’re pulling back appropriately in response to what’s happening in the market. As an article from HousingWire explains

“Even with a massive housing shortage across the nation, homebuilders are completing their pipelines and not seeking as many permits to construct new single-family houses.” 

Builders remember what happened when they overbuilt in the crash, and they’re looking to avoid a repeat of that. So, they’re being mindful and pulling back a bit.

You May Have More Options Now Versus Later

If you are thinking about buying a new home, here's what you should know. With builders requesting fewer permits and not breaking ground on as many new homes, we may be nearing the peak of new home construction for the year. This does not mean that new home construction is coming to a halt; rather, the pace is slowing, which will have an impact on what comes to market later this year. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:

“Given the recent declines in housing starts, home completions will steadily show declines in about six months.”

So, if you’re ready and able to buy now, you may find you’ll have more newly built options to choose from now versus later on. This may be enough reason to kick off your search.

Just be sure to work with a local real estate agent you know and trust throughout the process. An agent will have valuable insight into builder reputations and other key factors specific to your market. And if there isn’t much new construction near you, they’ll be able to point you toward a nearby area where there is.

Bottom Line

While new home construction represents a larger segment of the market than usual, this is not necessarily a bad thing. Builders are not overbuilding, and they are responding to market signals to avoid making the same mistakes as in 2008.

 

If you want to buy now while new home options may be at their peak, let’s connect.

 

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