The biggest challenge to today’s housing market is the shortage of housing inventory for sale. A normal market would see a six-month supply of homes for sale. Currently, that number is below four months. This is the major reason home prices have continued to appreciate at higher levels than historic averages.

The good news is that builders are now starting to build more homes in lower price ranges.

Builder Confidence is Up

The Housing Market Index from the National Association of Home Builders (NAHB) reveals that builder confidence increased last month. HousingWire quoted NAHB Chief Economist Robert Dietz about the reason for the increase in confidence amongst builders.

“The HMI measure of future sales conditions reached its highest level since June 2005, a sign of growing consumer confidence in the new home market. Especially as existing home inventory remains tight, we can expect increased demand for new construction moving forward.”

Builders are Meeting the Needs of Today’s Purchaser

Builders are not only jumping into the market – they are doing a better job of matching current demand. The Wall Street Journal recently reported:

“In a shift, new households are overwhelmingly choosing to buy rather than rent. Some 854,000 new-owner households were formed during the first three months of the year, more than double the 365,000 new-renter households formed during the period, according to Census Bureau data.”

The WSJ article went on to say:

“Home builders are beginning to shift their focus away from luxury homes and toward homes at lower price points to cater to this burgeoning millennial clientele.”

The graph below compares 2016 to 2017 new construction sales by price point. As we can see, builders are slowly beginning to shift to prices more favorable to the first-time and non-luxury buyer.

 

Bottom Line

There is a drastic need for a larger supply of home inventory to meet the skyrocketing demand. Builders are finally doing their part to help rectify this situation.

In many areas of the country, there are not enough homes for sale to satisfy the number of buyers looking to purchase their dream homes. Experts have long proposed that a ramp-up in new, single-family home construction would be one of the many ways to overcome this inventory shortage.

According to a recent survey conducted by the National Association of Home Builders (NAHB) and Wells Fargo, housing market confidence amongst builders reached an 11-year high last month.

What Does High Confidence Mean for the Housing Market?

In a recent interview, Rob Dietz, Chief Economist and SVP for NAHB, put it this way:

“Higher market confidence will translate into more building and more inventory in 2017. We expect single-family construction to grow 10 percent next year.”

With 2016 marking the best year in real estate sales in over a decade, a 10 percent ramp-up in single-family construction will only aid in making 2017 an even greater year.

According to the latest US Census data, sales of newly constructed homes were up 3.7% over January 2016 as they reached a seasonally adjusted annual rate of 555,000. Dietz went on to comment:

“We can expect further growth in new home sales throughout the year, spurred on by employment gains and a rise in household formations. As the supply of existing homes remains tight, more consumers will turn to new construction.”

Bottom Line

With the weather and the real estate market heating up this spring, there will be a surge of new construction coming to the market soon.