Is New Construction The Answer To The Housing Shortage?

The shortage of housing inventory is the largest challenge to the housing market today.  You would see a six-month supply of houses for sale in a normal market.  Right now that number is below four months.  This would be the reason why home prices are appreciating at higher levels than regular historic averages.

The good news is that builders are ramping up new construction and starting to now build more homes in lower price ranges.

Confidence is Up for Builders

The Housing Market Index from the National Association of Home Builders (NAHB) says 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

The Wall Street Journal recently reported that builders are not only jumping into the market – they are doing a better job of matching current demand with new construction: 

“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 you can see, builders are shifting their prices to be more favorable to the first-time non-luxury home 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.

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