Prices Of Newly Built Homes Are On The Rise

Prices of newly built homes are on the rise again, illustrating that home builders are grappling with the same supply-and-demand problems bedeviling the existing home market.

New-home prices, which appeared to lose momentum over the past year, actually have caught a second wind of late.
New Commerce Department figures show that, after four consecutive months of slight declines, the median price of a newly built home in the U.S. rebounded by 4.1% in April to $297,300. That puts it back within striking distance of the all-time high of $302,700 set last November.

Some economists say demand simply is exceeding the pace at which builders can construct homes. Builders have started construction of 7.6% more single-family homes in the first four months of this year than at the same time last year, according to Commerce Department data, but they’ve sold 23.7% more than a year ago.

Some of those homes sold so far this year are speculative homes built at the end of last year. But others just haven’t gone under construction yet. Once builders get threatened with falling behind schedule, many opt to raise prices in a bid to temper demand.
“There just aren’t a lot of homes out there for sale,” said Mark Zandi, chief economist for Moody’s Analytics. “The market looks like it’s going to get even tighter because the level of construction remains very low compared to improving demand. I sense that, until builders can start ramping things up more significantly, pricing is going to be strong.”

In the resale market, the inventory level had held at about 4.6 months in the first quarter before rising to 5.3 months in April, meaning it would take that long at the current selling pace to burn through the available inventory of existing homes for sale. A balanced market, in which buyers and sellers are on roughly equal footing, is typically 6 to 7 months of supply.
Tight inventory in the resale market has resulted in prices close to the all-time high set nine years ago. In April, the median resale price reached $219,400, up 8.9% from April 2014. That increase likely will help to create more supply by pushing up home values and thus fattening homeowners’ equity cushions. However, the downside is that it makes buying a home more expensive, especially for first-time and entry-level buyers.

Posted in: building, cost of building, economy

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