The number of new homes built in April was down from this time last year, but the number in the works was up notably, and yet both pieces of information may not make much difference in the availability of new houses, particularly to new buyers, according to the National Association of Realtors.
The NAR’s assessment that the number of houses-to-be might not be enough to fulfill pent-up demand, rising prices, and bidding wars for houses across the country is based on the U.S. Department of Commerce [1]’s latest residential construction report [2], which shows that the total number of newly built homes in April dropped 5.8 percent (to 72,600) from a year ago and 6.4 percent from March. Those numbers, however, were not adjusted to account for seasonal fluctuations.
On the other side of these numbers is the fact that there were close to 1 million new homes under construction in April, which is a 15.7 percent uptick compared to a year ago and a 2.5 percent bump compared to March.
The news coincides with numbers [3] released by the U.S. Census Bureau [4] and HUD [5] on Tuesday, which found that home building in the U.S. picked up again in April after reaching the slowest pace in seven months. The numbers came from the jointly released new residential construction statistics [6]for April 2016, which showed that privately-owned housing starts rose 6.6 percent from March's rate of 1,099,000 to 1,172,000 in April at a seasonally adjusted annual rate. However, year-over-year, housing starts are down 1.7 percent from last April's rate of 1,192,000.
While some of this might sound encouraging, Jonathan Smoke, Realtor.com’s chief economist, said these numbers might not be enough to “make a dent in the limited inventory of homes for sale,” meaning bidding wars and climbing prices for new-builts should stay the norm.
“In the strongest markets in the country, we’re going to continue to see rapidly moving homes for sale, multiple bids on the most desired properties, and above-average price increases,” Smoke said.
This, he added, is not the greatest news for first-time buyers, who are having a hard enough time establishing mortgage-worthy credit these days and will likely be the largest group to get priced out of buying newly built homes.
Smoke also is worried that the drop in permits issued to build new multifamily residences‒‒which typically become rental properties‒‒will lead to a shortage of affordable rentals. This, he said, could be particularly problematic given that rental buildings like condos and apartments are expensive to build and, thus, have spurred more building in higher-end rental spaces.
In other words, there’s about to be a glut of high-end rentals with fewer people living in them, and that will result in higher rents all around.