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  • Writer's pictureKCStark

New Hope Amidst Housing Ice Age: A Deep Dive into the U.S. Construction Boom

U.S. Construction Boom vs Rate Ice Age

We are living in intriguing times. Homebuyers find themselves in a frozen state, trapped by an environment of stubborn homeowners, soaring mortgage rates, and fierce competition. However, a glimmer of hope lies on the horizon: new house constructions.

Rising Groundbreakings: The Solution to Housing Market Stagnation

The reluctance of homeowners to sell is steering buyers towards new constructions, breathing life into the somewhat sluggish market. Builders are incentivized to not only offer alternatives but also to ensure these new homes are sold at attractive prices. Here are some noteworthy trends:

  • Builders are selling houses faster and regaining optimism.

  • Record numbers of new apartments are poised to help lower rents.

  • Some builders are offering cheaper loans and discounts to mitigate the burden of high mortgage rates.

While the shape of this building boom is still unclear and builders wrestle with high borrowing rates and labor shortages, the upward swing in builder confidence could signify a crucial turning point in addressing America's housing shortage.

A Surprising Spike in New Home Construction

The May update from the Census on new home construction unveiled a shocking 22% surge in the annual pace of new homes to 1.63 million, outperforming the predicted -0.1% dip and reaching the highest point since April 2022.

  • An 18.5% increase for single-family homes to an annual rate of 997,000.

  • A 28% rise for multifamily homes.

  • A jump of 12% above the April rate in sales of newly built homes, which also marked a 20% increase from the same period the previous year.

This uptick was unexpected, particularly because housing starts and new home sales generally follow the same trend, but recently higher mortgage rates and pandemic disruptions have led to divergence in these figures.

New Hope Amidst Housing Ice Age: A Deep Dive into the U.S. Construction Boom

New Home Market Over Existing Home Market: The Ice Age?

With mortgage rates having more than doubled in the past year and a half, homeowners who secured their houses before 2022 have little motivation to move. Approximately 85% of mortgage holders at the end of May had an interest rate of 5% or lower, with about half enjoying a rate of 3.5% or lower. As a result, the new home market has emerged as the primary source for prospective homebuyers, in contrast to the weakening existing-home market.

The absence of sellers presents a clear advantage for homebuilders. "There's no indication anywhere in the data that there's a surge of existing homes coming to market," noted Mike Simonsen, president of Altos Research. This lack of existing homes feeds the demand for new constructions, giving homebuilders the upper hand.

Perks from Homebuilders

Builders can further entice buyers with unique incentives such as rate buydowns, offering potential homeowners significant savings over the life of their loans. In fact, approximately 56% of builders provided buyer incentives in June, according to the National Association of Homebuilders.

Although the use of these incentives is not as widespread as the historical high in 2008, their current resurgence suggests a strategic shift by builders to attract more buyers in the market. Compared to regular home sellers who don't see the need to provide such perks, builders offering these incentives are gaining a competitive advantage.

This trend, combined with the significant spike in new constructions, could well mark a pivotal moment in the U.S. housing market. As builders' confidence increases and the focus shifts from existing homes to new constructions, there may be a thawing on the horizon for the current housing market's Ice Age.

Have Questions About Your Home Shopping Options?

Is the ever-shifting landscape of the housing market unclear? Have questions? As a mortgage broker, I'm here to provide you with the insights and assistance you need to navigate these exciting complex times.

Whether you're a first-time buyer eager to step into the market or an investor looking to capitalize on the construction boom, I'm just a call away.

Call me or drop me an email today, and let's turn your dream into reality.


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