New Construction Home Prices See First Annual Drop in 7 Years
Redfin, Seattle, reported sale prices for newly built homes fell by 1 percent year over year to a median of $363,900 in the first quarter, the first such drop in seven years.
The report said sales of new homes fell by 3.1 percent year over year in the first quarter, the third consecutive quarter of declines. Supply of new homes rose by 4.2 percent in the first quarter, the fourth consecutive period of increases.
Redfin Chief Economist Daryl Fairweather said the small declines in new home sale prices and sales and the rise in supply were expected, noting Redfin reported demand for new homes was cooling in the second half of 2018 as builders started dropping prices and offering incentives to agents and buyers showing interest in new construction, such as free design upgrades.
Redfin said builders are now using other methods to lower prices for new homes in some areas, such as smaller lot sizes and including fewer upgrades in spec homes. Connie Durnal, a Redfin agent in Dallas, said lowering prices is part of an effort to sell some of the new home inventory that’s been piling up in Dallas, where supply of new homes rose by nearly 15 percent in the first quarter).
“The market for new homes is shifting,” Durnal said. “Builders are readjusting their pricing to be more competitive, both in low-end and high-end homes. Some of my clients have been able to buy new homes at prices we never could have negotiated a year ago.”
A separate Redfin analysis determined the share of homes affordable on the median personal income for construction workers in some of the nation’s largest metros. It found St. Louis is the most affordable place for a construction worker to buy a home, with 67.3 percent of homes for sale affordable on the median personal income for construction workers in the area, the highest share of any U.S. metro. Cleveland (64.7%) and Chicago (62.5%) rank second and third, respectively. Those metros are also relatively affordable for the population as a whole: In all three places, more than half of homes for sale are affordable on the area’s median household incomes.
However, a typical construction worker would find it nearly impossible to find a home they could afford to buy in any major California metro. In San Jose, just 0.1 percent of homes for sale are affordable on a local construction worker’s median income, making it the least affordable metro for construction workers, followed by San Diego (1.5%) and San Francisco (1.8%).
Fairweather noted that less than 20 percent of homes for sale in each California metro covered by this analysis are affordable for construction workers is representative of the larger housing crisis in the entire state. Between 2010 and 2018, California built the fewest apartments and for-sale housing units per new resident of any state except Arizona, with just one unit for every 3.1 newcomers (Arizona built one new unit for every 3.2 newcomers). Other states averaged nearly one new unit for every two new residents during the same period.
The report said San Jose provides an example of the housing affordability problems associated with a lack of supply. Although inventory has been recovering in recent months, the market continues to feel the effects of 15 consecutive months of double-digit supply declines through mid-2018. The lack of inventory drove prices from a median of $820,000 at the beginning of 2017 to more than $1.1 million last month.
Meanwhile, wages for construction workers in San Jose have not kept up. Annual salaries hovered at $60,000 throughout 2017 and 2018, just 12 percent higher than they were in 2012. Home prices in the area more than doubled from 2012 to 2018.
“It might seem like the solution to the housing shortage is straightforward–just build more homes–but in many California metros construction workers aren’t paid enough to cover their own housing costs, which makes attracting construction workers to build those homes quite difficult,” Fairweather said. “To solve the housing crisis, the government needs to step up and subsidize new construction. Some voters might find it distasteful to give wealthy developers subsidies, but those subsidies could come with strings attached like higher pay for working-class construction workers.”
