BAM’s Key Details:
- A record high share of homes for sale for the third quarter are new construction.
- Pandemic boomtowns are seeing a higher-than-average share of new construction.
- Builders are offering generous incentives to buyers and buyer agents.
According to a new Redfin report, the share of homes for sale that are new construction has reached a record high of 29%.
New homes built during the pandemic are hitting the market just when sellers across the country are reluctant to list their homes, thanks to a market slowdown that makes it less likely for homes to sell at the asking price, let alone above it.
That 29% share of new construction is the highest of any third quarter on record. New construction typically peaks in the first quarter and troughs in the second or third. The biggest share of any quarter on record was 34% in Q1 2021.
So what makes 2022 defy tradition—especially when homebuilder sentiment continues to drop? And what does this mean for your clients?
Not your typical third quarter
New construction has been taking up a steadily growing share of the overall housing supply since 2011 when home building started to bounce back after the financial crisis.
That trend is now picking up speed thanks to the surge in construction during the pandemic and the recent hesitancy of existing homeowners to put their homes up for sale.
Single-family housing starts increased 14% year over year in 2021—the steepest annual increase since 2013. The (predictable) result? More single-family housing units were completed in the third quarter than in any quarter since 2007.
This past September alone, the number of newly-built homes for sale was up 19% from the previous month.
Homebuilders across the U.S. took on scores of projects during the pandemic buying frenzy. But now they’re stuck with a glut of new homes that are harder to sell with mortgage rates at 7%.
Builders are offering incentives to buyers and agents
Builders are offering incentives to unload newly-built inventory—even offering to buy down the mortgage rate by 1.5 points. One Redfin agent in Houston witnessed a builder offering a $10,000 check for closing costs, a $3,000 gift card, and a new refrigerator.
Builders are offering better incentives than regular sellers, many of whom are still having a hard time accepting that they’re not going to get 20-30 offers like their neighbors did last year.
Builders are even offering incentives to buyer agents—like a 5% commission (up from the typical pre-pandemic 3%), along with bonuses.
Builders may ease up on construction in 2023
Redfin’s Deputy Chief Economist, Taylor Marr, expects the glut of newly-built inventory to cause a slowdown in new construction in 2023.
Homebuilders will take on fewer new projects next year as they focus on getting their existing projects sold. Builders will also shift more toward multifamily units, for which there is still relatively high demand because rents remain high.
Pandemic boomtowns have higher shares of new construction
Metros that became migration magnets during the pandemic also saw a corresponding growth in new construction—resulting in a larger-than-average share of available housing inventory.
Markets that exploded in popularity with out-of-town home shoppers are now seeing an equally dramatic slowdown.
Over half of the metros in Redfin’s top 20 are in Texas or Florida, and over 25% are now on Redfin’s list of “fastest cooling housing markets.”
El Paso, TX, is a prime example. Newly-built single-family homes make up 50% of all the homes for sale in the third quarter—the biggest share among the 80 major metros analyzed by Redfin.
Next in line—
- Oklahoma City: 43%
- Omaha, NE: 40%
- Raleigh, NC: 39%
- Houston: 37%
- North Port–Sarasota, FL: 35%
- San Antonio: 33%
- Greenville, SC: 33%
- Boise, ID: 33%
- Charleston, SC: 32%
Opportunities for buyers and sellers
With fewer buyers out shopping for homes, those still looking stand a better chance at getting a newly built home at a price they can afford.
And with homebuilders making concessions to sell more homes, buyers have an advantage they didn’t have in the first quarter of 2022.
Meanwhile, sellers can take advantage of the fact that, with fewer sellers putting their homes on the market, buyers who want to save money by purchasing a previously-owned home are more likely to notice the fewer previously-owned listings available.
Sellers need to be aware that builders are incentivizing buyers and their agents to purchase newly-built homes.
Top takeaways for real estate agents
As a real estate professional, your clients rely on you to know every card you can play in their favor. So, knowing what concessions home builders are willing to make is critical, especially for clients leaning heavily toward new construction.
Clients for whom affordability is a higher priority rely on you to know what concessions to ask for when negotiating with sellers. Study up on recent sales to get familiar with those concessions. And make sure you know your buyer’s bottom-line number.
Get to know your clients so well you can spot the best opportunities for them a mile away.
