Homebuilders need to get busy as demand is rising fast

by Steve Randall12 Feb 2020

Fourth quarter sales of new homes put more pressure on supply as 2019 ended.

Redfin says that sales were up 8.8% compared to a year earlier while new home supply dropped 11.1%, the largest inventory drop since at least 2012.

It marked the third consecutive quarter of decreasing supply of new homes and the economics for homebuilders continues to define inventory gains.

"The market has seen a mismatch between where new construction of homes are needed the most and where new homes are being built, and that's because builders are focused on areas where they can cheaply acquire and develop land," Redfin chief economist Daryl Fairweather said. “For example, expensive cities like San Francisco have seen a decline in building permits, while construction is booming in places like Raleigh, NC and El Paso, TX, which are already quite affordable.”

Prices decrease slightly
This focus on more affordable markets saw the national sale price of newly built homes dip 0.3% year-over-year in the fourth quarter of 2019 to $369,900.

Even so, it was the smallest decline out of the past three quarterly declines and some markets bucked the trend with rising prices.

"The only way to solve this mismatch between where people need homes and where homes are being built is for people to move to where the homes are, and that's already happening," said Fairweather. "Looking ahead, permits have increased thanks to low interest rates, so even though inventory is down, there's hope for the future given that permits are up so significantly."

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