New Construction Homes: A Buy Now Market
The 2017 summer began with many housing starts and completions, leaving buyers hopeful housing market supply would expand. Near the end of the summer, it became clear the housing starts shortage wasn’t resolved and would remain indefinitely.
Few new construction homes will be hitting the market in the near future—if you have your eye on one, buy it now.
Single Family Home Construction Pipeline, or Lack Thereof
May saw an increase in new home construction, but according to the June U.S. Department of Housing and Urban Development and U.S. Census Bureau joint residential construction report there aren’t many on the way.
In May, housing starts were looking strong: new home construction was up by 5.6 percent month-over-month and 14.6 percent year-over-year. As for single-family abode new construction—has a backyard—in May, starts were up 4.9 percent month-over-month and 12.8 percent year-over-year. In May, condo and apartment development construction were up 12 percent month-over-month, and a whopping 18.4 percent year-over-year.
Contrary to those national trends, home building in Boston this year has been down. This February in Boston, home starts were down 71 percent year-over-year, and total spent on new home construction was down an alarming approximate 70 percent from February 2016. In March, the year-to-date total spent on new home construction was down too, by 67 percent year-over-year.
Boston has seen an overall decrease in construction spending this year, largely due to the decrease in new home construction. Other construction sectors in Boston aren’t seeing that decreasing trend: earlier this year, the amount spent on nonresidential construction increased 25 percent year-over-year.
Starts and Completions
Near the end of summer, the U.S. Department of Housing and Urban Development and U.S. Census Bureau joint residential construction report provided that already low housing starts dropped another 0.8 percent in August after July gave a slight (and hopeful) increase in single-family home starts of 1.6 percent.
Not only did housing starts drop, but housing completions also dropped in August by 10.2 percent from July, and single-family housing completions dropped in August an even larger 13.3 percent month-over-month.
Setbacks will prevail with Construction Labor Shortage
The decrease and shortage in housing starts and completions at the end of the summer were expected to continue. The nation faced detrimental hurricane damage over the summer, so labor construction efforts are being focused on rebuilding rather than new home construction.
New Construction Homes: In Demand and Prices Soar
Boston real estate is in high demand, and condo and apartment developments are booming, but we aren’t seeing the demand for houses being met.
The diminishing new home construction rates and rising housing demand is fueling the housing market shortage. We are now seeing single-family construction starts slowly rise, but developers continue to operate far below expected construction levels. It will likely take developers a significant amount of time to catch up on the back-log and continued growth of housing demand—and to do that, they’ll need the permits and workers they don’t currently have.
Until construction catches up, buyers will continue to see escalating prices of homes on the market said a senior economist. Because the new construction home market is also tight, buyers see those prices soar—on average around 25.6 percent more expensive than homes for re-sale.
The current housing market is benefiting sellers. Sellers are receiving offers with high price tags often resulting in bidding wars.
The tight market has housing prices soaring much more rapidly than national income growth. Most developers aren’t investing much in constructing starter homes, so aspiring home buyers must face the steep housing prices whether they are seeking a re-sale or new construction home.
Despite low mortgage rates and some changes to mortgage qualification standards, the tight market allows lenders to select favored buyers like individuals with a large cash down payment, a no contingency sale, or a pre-approved mortgage.
Experts project the housing shortage to persist well into 2018.
Permits Plunge Amidst the Housing Shortage
Exacerbating the housing shortage issue, in May home building permits were down by nearly five-percent from April, and declined by nearly one-percent year over year. This left May seeing housing starts down 5.5-percent from April and 2.4-percent year-over-year.
Multi-unit residential building permits including apartments and condominiums dropped alarmingly year-over-year in April by 10.1-percent and May by 13.1-percent.
In January 2017, Boston hit a 12-year historical low for single-family home inventory. A chief economist speculated that the nation might face a housing emergency if the gap between housing supply and demand continues to expand.
With the lack of homebuilding permits and less new construction hitting the market home and rent prices are likely to soar.
As summer came to an end, the homebuilding permit issue began to turn around with a year-over-year increase in permits for privately-owned homes by 5.7-percent in July and 8.3-percent in August.
In July, single-family housing permits were also up, but only by 1.5-percent year-over-year. 2017 has seen single-family home median sales prices hit decade-highs and homeownership is at its lowest in nearly 50-years.
Civic leaders are striving to develop innovative solutions to solve the housing shortage, and with an increase in new home building permits, there is hope we will see more construction starts and completions to expand the housing market.