New construction slid in March, adding to inventory woes
Low inventory has kept home prices high, and builders can’t deliver new homes fast enough to meet the demand.
Key points:
- The U.S. Census and HUD have reported that new permits fell from 1.55 million in February to 1.43 million in March.
- However, home completions have remained steady in the last couple of months.
- But as new permits slide, that could mean fewer deliveries in the future, adding more frustration to already exhausted buyers.
Prospective homebuyers are again finding themselves in bidding wars as inventory shortages continue to stymie markets across the country, but will new home builders provide relief?
The latest report from the U.S. Census Bureau and HUD on new home construction indicates a decline in new permits in March, sliding to 1.43 million from 1.55 million a month prior, a reduction of roughly 8.8%. When looking year-over-year, new permits are down a whopping 25% from 1.88 million in March 2022.
However, housing completions remain fairly steady at 1.54 million homes delivered in March, just shy of the 1.55 million homes completed in February. Compared to a year ago, when 1.36 million homes were delivered, builders have picked up the pace significantly.
And it may be no surprise considering that the major supply chain disruptions and erratic commodity prices that impacted the industry during much of the pandemic may have finally found their way back to equilibrium. The nation has been experiencing a prolonged housing shortage that has kept home prices high and out of reach for many younger or first-time buyers.
Experts, such as economist Dr. Lisa Sturtevant of Bright MLS, suggests there's still a long way to go.
"Nationally, new homes account for about one out of three homes available for sale in April, up from one out of 10 homes in a more typical housing market," she said in a statement. "The uptick in new construction activity is a welcome sign for frustrated homebuilders, but the number of new homes coming on to the market will do little to make a dent in the supply shortfall or improve prices, particularly for first-time homebuyers."
As mortgage rates surged last year, sending buyers off to the sidelines, new home builders were offering a variety of concessions — such as buydowns on mortgage rates and upgraded appliances — to lure buyers back and get houses under contract. But that trend could reverse as the housing market heats back up and inventory remains tight.
And indeed, it's looking like it may be a challenging spring season for homebuyers and their agents, suggests Keeping Current Matters Chief Economist George Ratiu.
"For buyers and sellers contending with a very limited inventory of existing homes, the pipeline of new homes holds the promise of more options, albeit not a lot of affordable ones," he said in a statement. "The median price of a new home in February of this year was $438,200, a 2.5% premium over last year's already-high price. Homeowners looking to move up to a new home may want to look at rate buy-down options with builders to make a deal more palatable in today's rate environment."