Housing demand drastically outpaces supply
Prospective homeowners are so eager to buy that many are closing on new homes that aren’t even close to move-in ready.
- In turn, prices surged, making homes more unaffordable to increasingly frustrated consumers.
- However, many of the buyers who remain in the market seem to be getting more aggressive as an increasing share of new home buyers aren’t waiting for construction to be completed before they sign.
By the numbers: In June, 76.6% of the new homes sold were either still under construction or not yet started. This is considerably higher than the 65% level where the metric trended before the pandemic.
- For impatient buyers, this may continue to be the best option in the near term based on the inventory.
- While the supply of new homes for sale actually increased to 6.3 months' worth in June — the highest level since April 2020 — completed homes represented a record low 10.2% of this supply.
What they’re saying: “In recent months, many homebuilders have resorted to intentionally slowing the pace of new sales to allow production to catch up,” Ivy Zelman, CEO of housing research firm Zelman & Associates, tells Axios.
- “Speculative homes are being started and will not be released for sale until later on in the construction process given the inflated cost risk, or in some cases upon completion. This should change the supply-demand landscape, as more inventory gets released for sale."
What to watch: In addition to the new home sales reports, monthly updates on homebuilder confidence from the NAHB and new residential construction from the Census Bureau will provide the earliest signals on if and when new home supplies improve materially.
- “There are signs that this low inventory/tight housing market could be ending or softening soon,” UBS senior U.S. economist Pablo Villanueva tells Axios. “Inventory of new homes for sale is rising, demand is softening, labor market is loosening, and supply chain disruptions probably peaked in Q2.”
The bottom line: While new home sales are well off of their highs, the underlying details suggest there is nevertheless a sense of urgency among those who have the capacity to buy.