New homes and the real estate market: the chicken or the egg?

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Published Date 5/23/2024

When the going gets tough, homebuilders get going. That might be the new mantra of the new home construction industry. HousingWire’s Sara Marx reports that according to Redfin, newly built homes accounted for 33.4% of single-family homes for sale in the first quarter, virtually unchanged from a year earlier and down slightly from a peak of 34.5% two years ago. However, this amounts to roughly double pre-pandemic levels.

“Newly built homes have taken up an outsized portion of inventory since the pandemic for two main reasons, according to Redfin,” says Marx. “First, a spike in home buying demand drove the surge in U.S. home construction at the onset of the pandemic. Remote work and historically low mortgage rates made it particularly attractive to buy a home. Second, homeowners have been reluctant to sell their houses due to mortgage rates, which have reached a two-decade high point.” She adds that many potential sellers prefer to keep their low rates rather than move and trade in for higher ones.

Agents from California to Maine are grateful for the number of new construction homes for sale, as buyers are having a hard time finding single-family homes in their budget. Evidently, those willing to let go of their houses tend to price high because they haven’t come to terms with the fact that prices have come down from their 2022 peak.

Builders tend to have a better understanding of the current market, leading to fairer pricing and mortgage-rate buydowns, while providing other concessions to attract buyers. When you think about it, homebuilders, who buy land, building materials, appliances, and employ millions of people, also provide the straw that stirs the economy’s soup as well.

Marx says the slight decline in the share of newly built homes from its 2022 peak can be attributed to an increase in total inventory, as more homeowners are listing their existing homes. “Simultaneously, builders have tempered their activity due to high mortgage rates and reduced demand, and many are still working to sell off homes that were started in 2021 and 2022,” she says.

Newly built homes continue to play a crucial role in meeting demand and providing options for buyers navigating a challenging market.

HousingWire, TBWS

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