Optimism Amid Housing Decline


Explore the optimism among new home builders despite a recent decline in housing starts. Discover how market conditions and expert forecasts suggest strong new home sales in 2024, indicating a promising future for prospective buyers. 


New home construction accounts for 10-12% of single-family home sales in typical years. With recent inventory shortages, some regional markets have seen that figure rise as high as 30%. The current market conditions of sustained low inventory and frustrated buyers led experts to anticipate strong new home sales for 2024.
 
This demand is leading the National Association of Home Builders (NAHB) to forecast that single-family housing starts will increase by 4.7% in 2024. Additionally, around 80% of builders believe they will start more homes this year, with about half expecting a 10% increase.
 
Building Permit Activity
 
The new year began with positive figures from the joint US Census Bureau and Housing and Urban Development (HUD) tracking. They reported an 8.6% year-over-year (YOY) increase in building permit filings for January 2024. February permit activity exceeded estimates and year-over-year numbers, with builders filing 2.4% more permits than in February 2023.
 
However, new home construction sales fell below projections in March 2024. The numbers were 4.3% less than the previous month, but still 1.5% more than March 2023.
 
Housing Starts
 
Permits for privately owned residential construction signal future activity, but actual build time could be months or years out. Housing starts are when construction breaks ground, making it a better indicator if new home inventory could increase about 9-12 months down the road.
 
For January, housing starts slowed down, with single-family homes having 4.7% fewer starts than in December 2023. The market rebounded slightly in February 2024, with builders launching 5.9% more housing projects than in February 2023, and single-family home starts were up 11.6%. However, March saw a decline, with construction starts down 14.7% from last month and 4.3% less than last year.
 
Housing Completions
 
This statistic measures when the Certificate of Occupancy is filed, not necessarily when a new home is sold or the new owners assume title. Still, it’s an idea of how many new homes are ready to sell.
 
Year-to-year, completions increased 2.8% in January 2024, but overall, it was down from December. About 16% fewer single-family homes reached the completion stage. February 2024 reported 9.6% more completions than the prior year, and single-family completions were up 20.2% from January 2024.
 
March saw a slowdown, with completions 13.5% under the prior month and 3.9% fewer than in March 2023. About 10.5% fewer single-family homes were delivered month-to-month.
 
New Home Sales
 
While construction permitting and starts fell below last year’s numbers and market estimates, new home sales were positive. March 2024 had 9% more new home sales than anticipated. Year-over-year, new home sales were up 8.3%, with a median sales price of $430,700.
 
For the first quarter, 181,000 new homes sold, the majority in the $300,000-$399,000 price range. The current supply of new homes for sale is estimated at 8.3 months nationwide, or 477,000 homes.
 
First Quarter New Construction
 
Why the pullback in permits and starts? The real estate market had hoped interest rates would begin a slow but steady taper downward. Unfortunately, the opposite occurred, with interest rates heading back towards 8%. This stressed affordability for buyers and trickled over into demand for new homes.
 
Nonetheless, builders felt slightly more confident about new home sales over the next few months. The NAHB housing market index (HMI) increased month-to-month, ending at 62 out of 100 in March for activity over the next six months. An increase in potential buyer traffic was also noted.
 
Despite the recent decline in housing starts, builders remain optimistic about the future. If you’re considering a new home, now is a great time to explore your options. Call or text us at 916-659-5747 to learn more and start your journey to a new home today!

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