New Building Construction Across US in 2022
Real estate markets across the U.S. have exploded during the COVID-19 pandemic. Residential prices have skyrocketed, driven by cash-rich, eager buyers and a severe shortage of for-sale inventory.
While real estate developers are eager to absorb the influx of buyer demand, new developments are not being built fast enough to curb the rapid rise in house prices due to years of under-construction and real factors such as the current supply chain crisis and labor crunch.
Despite an uptick in new construction over the past year, the U.S. housing market as a whole remains undersupplied, according to data compiled for Realtor.com by real estate portal Realtor.com. The data refers to the latest data as of press time, including home sales data from November 2020 to October 2021, and new home construction permit data for the first 11 months of 2021. Of the 338 U.S. metro areas analyzed, only nine-about 2.6 percent-have more construction permits than home sales, including Austin, Texas, and Provo, Utah.
Danielle Hale, chief economist at Realtor.com, said: “New construction is a relatively small but critical component of the housing market, especially now, as housing starts have been falling for years. It lags behind the household formation rate.” She added, “We estimate that given the rate at which household formation is outpacing single-family construction, the housing shortfall could be as high as 5.2 million units, which is a dilemma that we desperately need to get out of.”
According to a recent report from Oklahoma-based legal services firm LegalShield, the agency’s national Housing Construction Index fell slightly in December 2021 despite the enthusiasm among real estate developers. Indicating a slight pullback in housing starts as builders struggled to overcome various economic hurdles.
Jeff Bell, chief executive of LegalShield, said: “We expect housing starts to decline by the end of the first quarter if current trends continue. We are clear that this inflation cycle is driven by supply. , which means that the market does not have enough supply to maintain it. Relatedly, logistics is also unsustainable, with insufficient cargo volumes and port throughput.”
In this frothy market environment, where inventory issues have become a priority, buyers and sellers may be uncharacteristically concerned about housing starts in their area and want to understand how the data will affect their future opportunities in the market.
The following sections explore how to analyze the current state of the market through key metrics such as housing starts, as well as other trends and measures to watch in 2022.
Combined with actual analysis of construction data
The relationship between housing starts and house prices is by no means a simple cause-and-effect relationship. It’s not that new housing construction increases, and it is assumed that more housing will be on the market and prices will fall accordingly.
Taylor Marr, deputy chief economist at real estate agency Redfin, said: “Supply is only one of the determining factors. Home starts or construction permits are more of a reflection of builders’ confidence. Looking at the growth of construction permits in an area usually It’s one of the best ways to judge builders’ optimism about the outlook for the local real estate market.”
Even in markets not plagued by supply chain issues, project construction is a slow process, so housing starts are often a lagging indicator, and there is no guarantee that a project for which developers have applied for approval will eventually be built and brought to market.
“Housing starts are one of the main indicators economists always look at because they tell us about future market activity trends, but not all of them,” said Greg Heym, chief economist at Brown Harris Stevens, a real estate brokerage. The approved projects can be converted into housing. After all, things are not always smooth sailing, and there is now a huge backlog of single-family home construction due to a lack of labor and building materials.”
With nearly every market facing a severe housing shortage, potential sellers need not worry about competition from nearby new developments, and would-be buyers shouldn’t be overly hopeful that new housing stock will significantly reduce price pressures.
“With the extreme scarcity of homes for sale, the pick-up in residential construction is a positive sign, and it’s just a relief, obviously we need more homes,” Heim said. “I think if you’re looking to buy a home, you’d better Keep an eye on the fundamentals of your area. If there is a lot of listings for sale or vacant land in development, this is really worth paying attention to, as this can affect the future value of your home. But the impact is not always negative Yes, as an area matures, the supporting facilities such as restaurants, shops and infrastructure will be improved day by day.”
He added, “If you’re thinking about buying a home, it’s important to look at local inventory levels. Right now, most of the country is still a seller’s market, and you don’t have to worry too much about the flood of new listings affecting your home value because the market is In an environment where demand is in short supply.”
Similar logic applies to seller groups.
For example, Marr said, “If you’re in a market where there’s a lot of new builds coming to market and you’re trying to find the best time to sell your investment property, it’s better to sell early. Of course, that’s not commonplace, in most cases. , builders are just trying to catch up with surging buyer demand. When you’re in a market with a lot of new construction, that actually bodes well for long-term economic growth, which makes for a good pre-requisite for holding a property for five to ten years. “
Focus on the overall situation and grasp the pulse of the market
Housing starts are just one indicator of the complex, volatile and highly unusual conditions in the U.S. housing market, and savvy buyers and sellers should pay close attention to a variety of other factors.
Frank Nothaft, chief economist at real estate data analytics firm CoreLogic, said: “Homebuilders are responding aggressively to market demand, and they are seeing more and more people in this wave of migration. Choose to move from high-cost areas to low-cost areas like the southern and western hill states. If you’re looking to buy a home and are willing to dig deeper, you may want to know what the vacancy rate is in your local market and whether the population movement will continue .”
Notaft added, “If you’re seeing vacancies rising, that could be a sign that price pressures are waning in the market.” At the same time, he said, in cities like Dallas or Houston, while new development is coming in, there’s no shortage of new developments. But the vacancy rate has remained chronically low, largely because the supply of new housing is quickly being absorbed by the migrant population.
Metro areas where construction permits outpace home sales include Austin, Texas; Boise, Idaho; and Provo-Orem, Utah, but buyer demand remains strong in these areas, according to data provided by Realtor.com . “While we are forecasting a slowdown in home price growth, I don’t think these metro areas are at risk of stalling in price growth,” Hale said.
Even the imminent move to raise interest rates is unlikely to significantly dampen home buying activity anytime soon. “On the other hand, wage growth has also been very strong and buyers may have high expectations that house prices will continue to rise,” Marr said.
Regardless of the market, buyers or sellers should put their real needs first, rather than spending too much time trying to decipher future price movements or chasing the perfect timing, experts advise.
“Historically, for those who have held their properties for five to ten years or more, they have had the opportunity to benefit from the appreciation in value,” said Heim. It will go up 25% in a year, but it won’t depreciate that much.”
He added, “If you’re in an area with oversupply, you shouldn’t immediately exclude it either, because more options give you a bigger bargaining advantage and you have the chance to get a good price.” In the market, there are no hard and fast rules, and no one can predict what will happen a year from now, because today’s world is changing rapidly, economic recession, material shortages, the new crown epidemic, all these are unpredictable uncertainties.”
Originally published at https://www.tlw.com.