Why it might be easier to buy a new home soon
If you want to buy a new home today, you have to be patient. Home prices and interest rates continue to move north. And a shortage of supplies can make it difficult to find homes for sale within your budget.
Part of the problem is that builders aren’t starting enough new affordable homes to meet demand. But new data suggests help is on the way.
Experts say the news should make home buyers looking for positive signs in the real estate market more confident.
Learn what you can afford. Then explore your options. You don’t have to feel limited to just buying a resale home.
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New numbers point in positive directions
Looking for signs of hope from the housing industry? Consider these latest findings:
- New construction got off to a good start this year, according to the Commerce Department. In January, the number of new housing constructions increased at an annual rate of 1.326 million. This is an increase of 9.7% from the previous month. It is also the third increase in four months.
- The number of building permits obtained by builders has jumped at an annual rate of 1.396 million. This is an increase of 7.4% compared to December 2016.
- Total new housing starts rose 7.3 percent in the 12 months to January. Starts of single-family homes climbed 7.6% over this period.
Rising mortgage rates are affecting home affordability, but less than you might think
- Builders are also feeling more confident and optimistic. Consider the National Association of Home Builders (NAHB) Housing Market Index (HMI). The HMI score is based on the results of a monthly survey of NAHB homebuilder members. This survey asks builders to assess current market conditions for newly built homes. He also asks them what their expectations are on these conditions during the next semester. An HMI score above 50 suggests that more manufacturers think conditions are “good” compared to “poor”.
- The total HMI score for February is a favorable 72.
- But the score for its more forward-looking component – asking about conditions six months into the future – is even better, at 80. That marks a post-recession high. He indicates that manufacturers are more confident for the second half of 2018.
Why this is good news
Robert Dietz, chief economist of the NAHB, likes these numbers.
“The measure of builder confidence would indicate that the construction of single-family homes will increase. This indicates that builders are going to add inventory to the market, ”he said. “More supply is coming. But growth rates will be modest.
Housing remains affordable, despite the end of historically low interest rates and rising prices. The illustration below shows the difference between buying a house today at 4.5 percent (down 20 percent) and buying a house in 1981 at 18.75 percent with 20 percent less. Household income required increased by
After 37 years, the required income has increased by 47 percent, but this is not adjusted for inflation. If adjusted for inflation, the 1981 figure of $ 36,885 would equal $ 105,098 today. So the mid-priced home is much more affordable today than it was in 1981.
Dietz said the NAHB expects a rise of about 5% in single-family home construction in 2018. That would bring the production level for the year to just under 900,000 units. He says the market needs over 1.3 million units to keep pace with demand.
How many houses can you afford?
Still, builders and home buyers have reason to be optimistic right now.
“Economic optimism is high,” says Bruce Ailion, an Atlanta-based property lawyer. “And we can expect builders to build as much as possible as soon as possible.”
Ailion explains that for years builders have focused on building new, more expensive homes.
“That’s because they can typically charge 20% more for these homes than a similar resale home. As this demand was met, builders looked to expand and found significant unmet demand for entry-level housing. They are now working to meet this demand, ”says Ailion. “The prices paid for entry-level renovated homes have reached such a point that builders are comfortable building this market. “
Feel the pressure
But there’s still a lot of pressure on builders and buyers these days, says George Ratiu, general manager of real estate and business research for the National Association of Realtors.
He notes that population growth has increased by nine percent over the past decade. In addition, household formation has returned to a historic average of 1.2 million per year. As a result, new home construction and sales have lagged behind.
Home affordability calculator
“Increasing demand and weak supply have caused house prices to rise 41% over the past five years. Real wages only increased by 12% over the same period, ”says Ratiu. “This change has reduced affordability, especially for first-time buyers. A constant increase in new home construction is precisely the solution to the squeeze in affordability. “
Why the builders were crippled
Yet the construction of new homes has been hampered by several factors.
“Builders cite rising costs of building materials as the main driver of rising new home prices. Combine that with a significant labor shortage. Additionally, zoning regulations and municipal requirements for new construction have caused developers to focus on high-end homes in recent years. This has come at the expense of affordable housing, ”adds Ratiu.
Price out of town? Consider living in the suburbs
Other factors have also hampered the efforts of manufacturers, says Dietz. These include a lack of available land on which to build, tighter financing from lenders, and higher prices for lumber and building materials.
As a result, many builders today are building slightly smaller homes in more remote or emerging markets where land is cheaper, Ailion explains.
What you can do
To help you find the right home, get ready to broaden your horizons and do your homework.
“Some buyers will have to be more creative in finding a new or existing home than they can afford,” says Dietz.
Affordable housing: the 10 best neighborhoods in the country
Dietz recommends checking out several options, including:
Dismantling and vacant lots on which to build a new house. Teardowns now represent about 10% of single-family home starts. That’s up from eight percent a year earlier, according to Dietz.
New townhouses, which now account for 12% of single-family housing starts.
Fixing rods that can be purchased at a reduced price but reshaped.
“Compare prices. And think of different neighborhoods in suburban and urban areas,” says Dietz. “Keep your outlook open. This is because stocks are going to stay tight for the foreseeable future.
Check your new rate (December 7, 2021)