Will Home Builders Provide Relief to Frustrated Home Buyers?

Will Home Builders Provide Relief to Frustrated Home Buyers?

Record home prices and strong demand typically translate into a robust and active real estate market with heavy transaction volume. However, in this real estate cycle, high prices and solid demand are not enticing enough homeowners to put their properties up for sale. In fact, the lack of listing inventory appears to finally be catching up with frustrated buyers and chocking-off demand.

While home sales rose 4.4% in March, pending home sales, a forward-looking indicator based on contract signings, declined 0.8% from February and is only 0.8% higher than March 2016, according to the National Association of Realtors (NAR). “Home shoppers are coming out in droves this spring and competing with each other for the meager amount of listings in the affordable price range,” said NAR chief economist Lawrence Yun, adding “In most areas, the lower the price of a home for sale, the more competition there is for it. That’s the reason why first-time buyers have yet to make up a larger share of the market this year, despite there being more sales overall.” Yun forecasts existing-home sales to be roughly 5.64 million this year, an increase of 3.5% annually and a smaller gain than last year.

Meanwhile, real estate firm Redfin revealed that the number of customers requesting home tours and writing offers fell by 14% in March from February. Additionally, Redfin showed that homes listed for sale across 15 metro areas dropped 12.5% in March from March 2016. “The market is missing its moment because of too-low inventory,” said Redfin chief economist Nela Richardson. “Low unemployment rates and high consumer confidence should create continued momentum in homebuyer demand. But, instead, we’re seeing demand cooling when it should be peaking.”

Further, mortgage applications are less than 1% higher than they were a year ago. At the same time last year, mortgage purchase applications were up around 17% annually.

Homebuilders to the Rescue?

However, there appears to be some relief in sight for frustrated buyers. Builders secured about 1.26 million building permits, 3.6% more than February and 17% more than March 2016, according to the joint New Residential Construction Report by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

Condo buyers and renters are expected to see more options come summer and fall as well. Permits for buildings with five or more units surged 18.3% from February and 26.1% year-over-year, according to the report. Meanwhile, permits issued for single-family homes dipped by 1.1% from February to March. However, they were up 13.5% from the same month a year earlier.

Nationally, the number of finished new homes, reached just over 1.2 million homes in March, according to the report. That’s up 3.2% from February and 13.4% over the same time last year.

The median price of a new home was $296,200 in February, according to the most recent data available from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development—nearly 30% higher than the price tag on existing homes.

New Homes Finished By Region

  • South:  Around 611,000 new homes, up 6.6% from a month ago and 10.5% higher than March 2016.
  • West:  Nearly 290,000 new homes, down 17.8% from February but 26.1% higher than March 2016.
  • Midwest:  About 191,000 new homes, up 52.8% from February and 12.4% higher than the same time a year earlier.
  • Northeast: About 113,000 new homes, down 3.4% from February but 2.7% higher than March of last year.