Obstacles and Opportunities To Increasing New Home Sales

Only a few years ago, during the peak of the Great Recession, the US housing sector was “down for the count”, and the sale of any home—new or existing—was a most welcome event for anyone involved in the housing industry.

However, with the housing sector in full recovery in a wide array of markets nationwide, these days an increasing amount of attention is being placed on what can be done to bridge the gap between the number of home re-sales versus the sales of newly built homes.

Recent statistics indicate that in 2016, new home sales increased by 12.2 percent over the previous year; last year, 563,300 new homes were sold nationwide. That number could have been even higher if not for a shortage of skilled construction labor in some markets, as well as a scarcity of lots available for development. In addition, interest rates began to rise last year—and will likely continue to do so again this year—making some potential homebuyers shy away from new homes, which are quite often more expensive to purchase than existing homes.

Median new US home prices rose last year—up to $313,200, an increase of about $17,000 from the previous year. And homebuilders worry that the median new home figure could increase—perhaps by a significant amount—in 2017, given an ongoing shortage of skilled labor, available lots and other external factors.

Still, despite steadily increasing interest rates—and the likelihood that there will be additional hikes over the course of this calendar year—there is still reason for optimism among the nation’s homebuilders.

Recently released statistics indicate that sales of newly constructed homes surged to a seven-month high in February, defying the expectations of many observers.

The Commerce Department revealed that the seasonally-adjusted annual rate of new home sales reached 592,000 units; that figure was an impressive 6.1 percent higher than the rate recorded in January—and a full 12.8 percent higher than the same month a year earlier.

In addition, February’s median sales price was $296,200—a drop of 3.9 percent for the month, and almost 5 percent lower than the same period a year ago. That’s good news for both homebuyers and, at least potentially, the homebuilding sector, as lower prices tend to attract buyers to new homes.

Of course, the warmest February on record also likely assisted with new home sales numbers.

Industry observers also noted that, if February’s home sales pace continues, it would take 5.4 months to exhaust the current supply of available new homes. That is seen by most as a positive sign, and indicative of a relatively stable housing market.

February’s home sales figures also reflected the broader success of many of the nation’s largest homebuilders.

For example, Lennar Corp. recently revealed that both its profit and sales exceeded analysts’ expectations, with new home orders up an impressive 12 percent higher in the first quarter, than the same period a year earlier.

It’s always difficult to predict what the housing future holds—perhaps never more so than when a new Administration assumes office in Washington.

Add to that, the reality that there are multiple factors that will, ultimately, affect the number of new homes that will be built and sold in the US this calendar year: interest rates, shortages of labor and available land to develop, consumer confidence, deregulation of the lending industry, just to name a few possible variables.

For now, however, the wind appears to be at the back of the new homebuilding industry, as they seem well positioned to bridge the current nationwide sales gap between new, and existing homes.