Homebuilders Aren’t Overbuilding, They’re Catching Up

Homebuilders Aren’t Overbuilding, They’re Catching Up

You may have heard that there are more brand-new homes available right now than usual. Today, about one in three homes on the market are newly built. If you're wondering what this means for the housing market and your own move, here's what you need to know.

Why This Isn’t Like 2008

People remember what happened to the housing market back in 2008, when an oversupply of homes contributed to the crash. Although only part of the oversupply then came from builders, the lasting impact is that some people still feel uneasy when they hear that new home construction has ramped up.

Even though the supply of new homes has grown this year, the data shows there’s no need to worry. Builders aren’t overbuilding, they’re just catching up.  

The graph below, using data from the Census, shows the number of new houses built over the past 52 years. Following the 2008 crash, there was a prolonged period of underbuilding (shown in red). It wasn’t until recently that we finally reached the long-term average for the number of homes built in a typical year.

This shows that even with the recent increase in new builds, there won't suddenly be an oversupply of homes for sale. There's still too much of a gap to make up after over a decade of underbuilding. And if you're still worried builders are overdoing it, here's something else that should be reassuring.

New Home Construction May Be at Its Peak for the Year

The latest data from the Census on housing starts (homes where builders just broke ground) and permits (homes where builders can start development soon) shows that builders are currently slowing down their pace. Why is that?

They're responding to still high mortgage rates and the impact these rates are having on buyer demand. Essentially, they're adjusting appropriately to current market conditions. As an article from HousingWire explains:

“Even with a massive housing shortage across the nation, homebuilders are completing their pipelines and not seeking as many permits to construct new single-family houses.” 

Builders remember what happened when they overbuilt in the crash, and they’re looking to avoid a repeat of that. So, they’re being mindful and pulling back a bit.

You May Have More Options Now Versus Later

If you’re considering a newly built home, here’s how this impacts you. With builders seeking fewer permits and not breaking ground on as many new homes, we may be at the peak of new home construction for the year. This doesn’t mean new home construction is screeching to a stop – just that the pace is slowing down, which will impact the market later this year. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:

“Given the recent declines in housing starts, home completions will steadily show declines in about six months.”

So, if you’re ready and able to buy now, you may find you’ll have more newly built options to choose from now versus later on. This may be enough reason to kick off your search.

Just be sure to work with a local real estate agent you know and trust throughout the process. An agent will have valuable insight into builder reputations and other key factors specific to your market. If there isn’t much new construction near you, they can guide you to nearby areas where there is.

Bottom Line

While it's true that new home construction is a larger segment of the market than usual, that's not a bad thing. Builders aren't overbuilding; they're responding to market signals to avoid repeating the mistakes of 2008.

If you want to buy now while new home options may be at their peak, let’s connect.