[REN #964] Housing Market: Existing Home Deficit Fuels New Build Market

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Housing Market: Existing Home Deficit Fuels New Build Market, Real Estate News for Investors Podcast Episode #964 Header

Existing home inventory is down. It’s gotten much worse since the start of the pandemic. Realtor.com says there are almost 400,000 fewer homes on the MLS than there were at the same time last year. The lack of inventory is pushing home prices higher, and reducing the number of days it takes to sell a home. That’s pushing many homebuyers and investors into the new home market.
Hi I’m Kathy Fettke and this is the Real Estate News for Investors.

The Realtor.com report shows that as of September 19th, the number of for-sale homes was down 39% year-over-year. Home prices have risen at double the pace, and homes are selling about 12 days faster. (1)

Realtor.com’s Javier Vivas says of the situation, “Sellers are more reluctant to list their homes, given the uncertainty over the economy and the pandemic environment. Buyers, on the other hand–especially hungry first-timers–remain largely unfazed by the challenges and are motivated by low mortgage rates and the fear of missing out on the right home.” And then when someone decides to sell their home, they are usually planning on buying another home which pumps another home buyer into the already crowded marketplace.

Lack of Inventory

The report includes a long list of major metro areas with information on price increases, the number of listings, and how fast homes are selling. To pick out a few examples:

  • In Atlanta, the median listing price is 9.9% higher than last year, the total number of listings is down almost 47%, and homes are selling about 9 days faster.
  • Cincinnati home prices surged since last year. Realtor.com says the median is about 18% higher while the inventory is down more than 48%.
  • Detroit is also on fire, with a 13% increase in home prices, and a 46% drop in inventory.
  • The market with the biggest change in both directions is Allentown, Pennsylvania. Prices are up 26% there and the inventory is down almost 60%!
  • There is one, just one market that shows lower home prices and an increase in inventory. Realtor.com says Honolulu prices are down 12% and inventory is up more than 27%.

It’s important to remember that some markets, like Detroit, are still quite affordable for both the homebuyer and the investor, even though prices have increased.

New Home Inventory

The new home inventory is also at a low ebb because sales have been exceptional. (2) The National Association of Realtors’ August report shows the sale of newly built homes was the highest it’s been in 14 years. That’s left the supply at a 3.3 month level, which is just a tad more than the supply for existing homes, which stands at about 3 months.

Chief economist for the National Association of Realtors, Lawrence Yun, says, “Housing demand is robust but supply is not and this imbalance will inevitably harm affordability and hinder ownership opportunities.” Yun says, we need to step up the pace of home construction which is only 1% higher this year than it was last year.

It isn’t just home construction that’s needed, however. Builders need to offer homes that are affordable while the price to build a home is rising. It’s easy to remember the five L’s for residential construction costs. You have: Land, Labor, Lumber, Lending, and Laws. They can all add to the cost of building a home, making it impossible for many consumers to afford one.

New Construction Income Properties

Residential construction is also booming for investors in many parts of the country. It’s the build-for-rent home which is designed for renters. The short-hand for this kind of construction is B2R. At RealWealth, we call these homes, “New Construction Income Properties.”

There are many benefits in the purchase of B2R’s along with a few drawbacks. A few of the positive aspects include homes that are built with durable materials and will likely remain maintenance-free for quite some time. They also come with a warranty, and they are very easy to rent because people like living in new homes. The drawbacks include a higher price tag but investors will save money on repairs. The new home may also command a higher rent, more reliable tenants, and fewer vacancies, if tenants don’t want to move.

RealWealth has identified top markets for the build-to-rent investor. To learn more join RealWealth for free.

Links:

(1) Realtor.com Report

(2) New Home Inventory

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