Record-High 3Q Homes for Sale New Construction
Redfin, Seattle, reported new construction took up a record percentage of housing inventory in the third quarter, partly filling a gap left by hesitant existing homeowners as the housing market slows.
The report said 29 percent of U.S. single-family homes for sale in the third quarter were new construction—the highest share of any third quarter on record. That’s up from 25% a year ago and 18% in third quarter 2020.
Redfin said newly built homes have been taking up a growing portion of overall housing supply since 2011, when building started to rebound after the financial crisis. The trend is now intensifying due to a surge in construction during the pandemic and a recent slowdown in existing homeowners putting their houses up for sale. Single-family housing starts rose 14% year over year in 2021, the largest annual increase since 2013. As a result, more single-family homes housing units were completed in the third quarter than any quarter since 2007. In September alone, the number of completed new homes for sale was up 19% from the prior month.
“Homebuilders started scores of projects during the pandemic moving frenzy and are now stuck with a bunch of new houses that are hard to sell because mortgage rates have risen to 7%,” said Faith Floyd, a Redfin real estate agent in Houston. “Builders are giving away everything but the kitchen sink to attract bidders. Many are offering to buy down the buyer’s mortgage rate by 1.5 points, and I’ve seen at least one offer a $10,000 check for closing costs, a $3,000 gift card and a free fridge. This one way builders will dig themselves out of the hole they’re in.”
However, the increase in new construction available isn’t necessarily translating into sales. Last month, the Mortgage Bankers Association’s Builder Applications Survey reported mortgage applications for new home purchases in September fell by 7 percent from August and by 13.2 percent a year ago.
With a glut of inventory on their hands, builders will likely ease up on construction in 2023, according to Redfin Deputy Chief Economist Taylor Marr.
“Homebuilders will take on fewer new projects next year as they focus on getting their existing projects sold,” Marr said. “Builders will also shift more toward multifamily units, for which there is still relatively high demand because rents remain high.”
Floyd noted many builders are offering more incentives than regular sellers. “A lot of individual sellers are still pricing their homes too high because they’re having a hard time accepting that the pandemic housing boom is over and they’re not going to get 30 offers like their neighbor did last year,” she said.
Many of the metro areas with relatively high shares of new homes for sale ramped up building during the pandemic because they exploded in popularity with out-of-town buyers, and are now seeing significant slowdowns in their housing markets. More than half of the metros in the top 20 are in Texas or Florida—hot pandemic migration destinations with room to build. More than one-quarter of the top 20 are now on Redfin’s list of fastest cooling housing markets.
In El Paso, Texas, for example, newly built single-family homes made up half of all homes for sale in the third quarter—the highest share among the 80 major metros with sufficient data that Redfin analyzed. Next came Oklahoma City (43%), Omaha, Neb. (40%), Raleigh, N.C. (39%) and Houston (37%). Rounding out the top 10 are North Port-Sarasota, Fla. (35%), San Antonio (33%), Greenville, S.C. (33%), Boise, Idaho (33%) and Charleston, S.C. (32%).
The highest share of any quarter on record was 34% in first-quarter 2021.