new home under construction

Newly built homes made up about a third of homes listed for sale in March, according to the U.S. commerce department and the National Association of Realtors (NAR).

Sales of new homes jumped 9.6 percent in March from February; new home starts were up 2.7 percent.

In December, the proportion of new homes among all homes listed for sale was as high as 35 percent, the highest since mid-1982, The Wall Street Journal noted.

Historically, new houses comprise only 10 to 20 percent of listings.

However, the spike in interest rates over the past 14 months has kept many homeowners sitting pat, waiting for rates to come down before they trade houses. 

The number of existing homes for sale is near historic lows.

Also, although mortgage interest rates remain high compared to the norm in recent years, they have stabilized recently. Many buyers have accustomed themselves to that rate range and have sought to lock in those rates now before they rise again, according to The Wall Street Journal.

“They no longer believe that rates are going to return to 3 or 4 percent,” Sheryl Palmer, CEO of Taylor Morrison Homes in Arizona, told the WSJ.

The average national rate for a 30-year, fixed-rate mortgage topped 7 percent in February but has stalled since. The rate was 6.83 on 8 May, according to Bankrate.

Those factors have driven more home-seekers to newly constructed houses, giving builders more business this spring than they had expected, the WSJ said.

“Because inventory is very tight and has remained tight, it’s very easy to move from a fear of buying at the top to a fear of missing out,” analyst Stephen Kim at Evercore ISI said to the WSJ.

As of 2 May, the S&P Homebuilders Select Industry stock index had gained 16.5 percent this year, more than doubling the Standard & Poor’s index’s overall 7.3-percent rise.

Builders D.R. Horton, Lennar Homes, and PulteGroup have seen their share prices shoot up 22, 25, and 44 percent, respectively, since 1 January.

Builders’ recent momentum may run out of steam if the U.S. Federal Reserve’s bump in interest rates last month moves mortgage rates higher again, analysts warned.

TREND FORECAST: The boom in new homes will be limited by the scarcity of available land on which to build, as we noted in “Median Home Sale Price Rises Despite Slowdown” (16 Aug 2022).

While new home sales grow, the supply of existing houses for sale will remain limited until the U.S. Federal Reserve holds its interest rate steady for at least two consecutive meetings.

At that point, homeowners will be able to make firmer expectations about the future that will allow them to make decisions about whether to sell.

The housing market will continue to normalize, barring a recession, but it will do so slowly because of tightened credit standards and general jitters about the economic future. 

Average national sale prices will continue to soften, but not greatly. A recession will weaken them further, with the depth and duration of a recession determining how much further prices will fall.

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