Mixed Trends in US Home Construction Point to Optimism Amid Inventory Challenges

The US housing market continues to navigate a complex landscape as new home construction shows signs of growth despite challenges posed by low inventory in the existing home market. This article examines the latest data on housing starts and building permits, shedding light on unexpected trends and the implications for the housing market. Additionally, we explore the role of affordability and the evolving strategies of builders to address the current high-interest environment.

Unexpected Rise in April:

US home building experienced an unexpected rise in April, with a 2% increase from March. This growth can be attributed to the limited inventory in the existing home market, which has fueled interest in new homes. However, when compared to the same period last year, housing starts were down by 22.3%, according to data released by the Census Bureau.

April Housing Starts:

After a surge in February, following five consecutive months of decline, housing starts dipped in March but rebounded in April. The units rose to a seasonally adjusted annual rate of 1.40 million, up from the revised March estimate of 1.37 million. Single-family housing starts, a crucial segment, increased by 1.6% from the revised March figure, reaching a seasonally adjusted annual rate of 833,000.

Building Permits in April:

Building permits, which track the number of new housing units granted permits, declined in April following a drop in March. Permits were down by 1.5% from the revised March rate and showed a significant decrease of 21.1% compared to the previous year. In April, building permits were at a seasonally adjusted annual rate of 1.416 million. While building permits declined in the Northeast and Midwest regions, they experienced an uptick in the South and West.

Challenges of Affordability and Adjusted Offerings:

Housing affordability remains a concern as mortgage rates continue to hover above 6%. In response to this high-interest environment, builders have started adjusting their offerings to appeal to a more moderate price point. This includes incorporating smaller floor plans and slimmed-down finish packages, allowing for more palatable pricing in today's market.

The Impact of Mortgage Rates:

The fluctuations in mortgage rates have a significant impact on the housing market, particularly on the affordability of homes. While lower mortgage rates can incentivize buyers and stimulate demand, higher rates can deter potential homeowners, especially those with high loan-to-debt ratios and upcoming student loan payments. These factors heavily impact younger buyers who are entering the housing market and may have limited financial resources.

According to Long & Foster's Market Minute, the May 2023 housing data reveals important insights. Total units sold in Hampton Roads/Southeast Virginia Real Estate increased by 16% from the previous month, with 2,316 units sold in May compared to 1,998 in April. However, the total units sold were 24% lower compared to May 2022.

The active inventory of homes available in May was lower by 1,180 units or 35% compared to the previous year, with a total of 2,173 homes available this month. This represents a decrease of 23% from the previous month's total supply of available inventory.

The median sale price for Hampton Roads/Southeast Virginia homes in May 2023 was $335,000, which is a 3% increase or $10,039 compared to the same period last year. Additionally, the median sale price is 3% higher than in April.

The months of supply in Hampton Roads/Southeast Virginia decreased by 15% compared to the previous year. In May, there was 0.9 months of supply available, down from 1.1 months in May 2022.

New listings for sale in Hampton Roads/Southeast Virginia decreased by 18% in May, with 2,827 homes newly listed compared to 3,463 in May 2022. However, the number of current contracts pending sale increased by 7% from the previous year, with 3,142 current contracts in May.

The average sale price in Hampton Roads/Southeast Virginia was 100.8% of the average list price in May, which is 1.6% lower than the same period last year. The average number of days on the market in May was 24, representing a 33% increase compared to the average of 18 days in the previous year.

The US housing market demonstrates a mix of trends in new home construction, showcasing both growth and challenges. While the unexpected rise in April housing starts reflects the increased interest in new homes amid low inventory in the existing market, the year-over-year decline signals ongoing obstacles. Builders are adjusting their strategies to address affordability concerns, offering more moderate-priced options. The influence of mortgage rates remains a critical factor impacting housing starts, as builders cautiously observe economic indicators. As the market continues to evolve, close monitoring of trends and adaptive approaches will be crucial in sustaining a balanced and resilient housing market. The insights from Long & Foster's Market Minute highlight regional nuances, emphasizing the importance of localized data in understanding market dynamics.