Homebuilders Aren't Overproducing, They're Making Up for Lost Time

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

Why This Isn’t Like 2008

Many people remember the housing market crash of 2008, partly caused by an oversupply of homes. While builders only contributed to a portion of that oversupply, the event left a lasting impression, making some uneasy about increased new home construction.

Despite the increase in new homes this year, there’s no need for concern. Builders are not overbuilding; they’re merely catching up.

The graph below, using data from the Census, illustrates the number of new houses built over the last 52 years. Following the 2008 crash, there was a prolonged period of underbuilding (highlighted in red). Only recently have we met the long-term average for annual home construction.

This data indicates that even with the recent increase in new builds, there won’t be a sudden oversupply of homes for sale. The gap created by over a decade of underbuilding is too significant. If you're still concerned about builders overdoing it, here's more reassurance.

New Home Construction May Be at Its Peak for the Year

Recent Census data on housing starts (homes where builders just broke ground) and permits (homes where builders can start development soon) show that builders are slowing down their pace. Why?

They’re reacting to high mortgage rates and their impact on buyer demand. Essentially, they’re pulling back appropriately in response 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 the consequences of overbuilding during the last crash and are keen to avoid repeating those mistakes. Thus, they are proceeding cautiously.

You May Have More Options Now Versus Later

If you’re considering a newly built home, here’s how this situation affects you. With builders pulling back on permits and new projects, we might be at the peak of new home construction for the year. This doesn’t mean new home construction is halting; it’s just that the pace is slowing, affecting future market availability. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), states:

“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 more newly built options available compared to later. This might be a compelling reason to begin your search.

Bottom Line

Although new home construction is currently a larger segment of the market than usual, this isn't a bad thing. Builders aren't overbuilding; they’re responding appropriately to market conditions to avoid the mistakes of 2008.

If you want to take advantage of the current peak in new home options, reach out to a local real estate agent. They can provide valuable insights into builder reputations and other market-specific factors. If there's limited new construction in your area, they can guide you to nearby locations where it’s more prevalent.

By working with a trusted local real estate team like Rucker and Associates, you can navigate the market effectively and make informed decisions about your home purchase.