If there’s a story that’s dominated real estate headlines over the past year, it’s been the prevalence of extremely tight housing inventories. COVID-19 restrictions delayed countless new home construction projects in 2020, further exacerbating strapped market conditions. Now that many of those restrictions have eased, what housing markets are seeing the most influx of new home builds?
New Home Build Demand Continues to Surge
In the midst of pent-up demand fueled by pandemic restrictions, builders have repeatedly raised their prices or capped their sales numbers in an attempt to temper the insatiable consumer desire for homeownership. Still, buyers keep coming — drawn by low mortgage rates, which allows for greater buying power, and the option to move away from city centers due to increased teleworking.
“Demand is so hot right now that campouts are back at select communities and some builders have reported hitting the best weeks and/or months in the history of their companies,” said Ali Wolf, chief economist at marketing and research firm, Zonda. “The spring selling season waited for no one this year as many people were still working from home and reevaluating their living situation, mortgage rates were still seriously low, and available homes for sale were still limited.”
With all these factors continuing to fuel demand, it begs the question…are there any markets that stand a chance of feeling some inventory relief from new home builds?
“The Lone Star State” is the All-Star State
According to the latest tally from the National Association of Home Builders, three of the 10 largest single-family housing markets based on construction permits are in Texas. Houston tops the list, followed closely by Dallas-Ft. Worth, while Austin ranks fifth.
In the first 11 months of 2020, Houston-area builders pulled over 43,000 permits, an 18% increase from the same period the year before. Dallas-Ft. Worth area builders pulled over 39,000, 22% more year over year. And in Austin, over 19,000 permits were pulled, a 16% year-over-year jump. San Antonio was the only major Texas metro area that did not make the top 10 list.
Despite these gains, builders in the Lone Star State are having trouble keeping pace with demand. “Builders are selling new homes at a faster pace than ever remembered,” says Ben Caballero of HomesUSA, which works with more than 100 builders in the state’s four largest markets.
What About the Rest of the Country?
If Texas ain’t your cup of (sweet) tea, there are certainly other areas producing a bevy of new home builds. In the Phoenix, Arizona area, permits were issued for 24% more houses in 2020 (more than 28,000) through November than over the same period a year prior, according to the NAHB count. In Charlotte, North Carolina, permits were up 18% for 16,400 new houses. The percentages didn’t increase that much in the other top hotspots, but they’re still putting up a powerful lot:
- Atlanta, GA: 25,600
- Tampa-St. Pete, FL: 14,600
- Orlando, FL: 14,150
- Nashville, TN: 12,750
- Washington, D.C.: 12,250
Buying Before Building
Texas’ big-city builders are confident, probably more so than anywhere else in the nation, because they’re selling out new home builds faster than they can…well… build them. Cabellero says, “the phenomenal demand for new homes in Texas is so high that builders are struggling to keep up.”
Indeed, pending new home sales in January were higher, year-over-year, in 16 of the country’s top 20 markets, according to Zonda. In Jacksonville, Florida, the number of contracts waiting to close was up a boiling 46%. Percolating just below that, Austin’s pending deals were up 42%, and Raleigh’s were up 34%. Pending deals were up almost that much in Denver (35.3%), Philadelphia (35.3%), Dallas (34.9%) and Cincinnati (30.6%).
Will We See Significant Inventory Relief?
Real estate is a local entity, so it’s always possible that these or other markets may see inventories open up more substantially this year. However, there are a few factors that are poised to interfere with significant, near-term inventory relief:
- Lumber costs – Lumber prices are skyrocketing, rising some 180% from $350 per thousand board feet last April to more than $1,000 today. In fact, the average price of a single-family home has risen more than $24,000, thanks largely to huge jumps in lumber costs.
- Lag time between construction start and completion – the latest Census data show that, for about 70% of new home construction projects, it can take an average of 4-6 months from start to completion, if not longer.
- Product shortages – Builders now rate their inability to obtain the products they need as their No. 1 problem, even more so than lumber costs. Nearly nine out of 10 surveyed by the NAHB said they are having difficulty getting appliances, of all things. Builders can’t obtain occupancy permits without installing ranges and refrigerators, but half the respondents say finding them and getting them delivered on time has become a major issue.
In short, experts are skeptical. “We have been the bright spot of the economy,” NAHB Chairman Chuck Fowke recently told his members. “But I don’t know how much longer we can continue.”
Time will tell if these new home builds will ease inventories, so we’ll keep our eyes on these cities to see how they fare in the 2021 market.
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