New constructions accounted for over a third of homes on the market in December, a new record high, according to a report from Redfin.
The share of newly constructed single-family units increased to 34.1% of all homes for sale in the final month of 2021, up from 25.4% one year earlier. By comparison, the inventory of existing homes for sale dropped to a record low in the same month, with only an estimated 1.8 months of supply available. For new construction homes alone, Redfin researchers estimated six months of inventory available.
“As a home buyer, you’re increasingly likely to see new builds when you look up homes for sale in your target area,” said Redfin economist Sheharyar Bokhari.
While the percentage of new homes on market has steadily crept up since the onset of the pandemic, the share sold relative to overall numbers has consistently remained close to 11%, a sign of current purchase demand far outpacing supply, the report said. In December, new for-sale inventory increased by 1.5% month-over-month, while volumes sold jumped 11.9% from November.
The jump in new homebuilding comes as little surprise to analysts, such as Jay McCandless, senior vice president of equity research at Wedbush Securities, who said some of the recently released earnings from homebuilders reflect the elevated demand in newly built homes. In an earnings call on Tuesday, officials from PulteGroup, parent company of Pulte Homes, said it had doubled the amount of speculative homes — houses started without sales contracts — in its pipeline to start 2022 compared to one year ago.
“These large volume players are the ones who are going to benefit from probably having more shots on goal versus existing homes than we've ever had before,” McCanless said to National Mortgage News.
While much of the growth in residential construction can be attributed to 2021’s low mortgage rates, the reduction in pre-owned inventory and the shift toward remote working, McCanless said the single-family rental market is also driving demand. Currently, over $50 billion in equity commitments targeting single-family rentals is in the market, according to data from John Burns Real Estate Consulting.
Some builders like LGI Homes, construct homes with similar designs that are amenable to the residential investor market, McCanless noted.
“LGI has five floor plans for the entire country. It's very easy from a maintenance perspective to take care of, to know what to look for,” he said.
The median sale price of new constructions also increased year over year, up 3.4% in December to $377,700. But that was a dip of 9.2% from November’s level. While rising inflation, supply chain disruptions and rising lumber costs continue to plague the housing industry, builders have looked for ways to keep costs down.
Prevent prices for their homes from rising too high, some have started constructing them slightly further out from metropolitan centers, according to McCanless. “You can over time start to bring your [average sales price] down or hold it flat just through the mix of where you're selling from,” he said.
Gross margin guidance among builders who reported year-end earnings thus far have also come in higher than consensus estimates. “I think the big builders have found a way to stay in front of the price-cost curve and combat this inflation that's out there,” McCanless said.
Among the 50 markets tracked by Redfin, Houston had the biggest share of newly built homes for sale in its overall inventory during the fourth quarter at 39.5%, followed by Minneapolis with 38.3% and San Antonio at 37.5%. Texas metros dominated the top of the list, thanks to the availability of land and relatively lenient construction regulations in the state, the report stated. The Lone Star State and the Southeast are both poised to continue seeing the most growth in new homes, McCanless said, continuing trends that had started pre-pandemic.
“The Southeast part of the country was averaging 65% of annual housing starts for several years prior to COVID. If you're going to see a shift in anything, maybe that 65% goes to 70% or 75% of starts,” he said.
