More than one-third (34.1%) of U.S. single-family homes for sale in December were new construction, up from 25.4% a year earlier and the highest share on record, according to real estate firm Redfin.
Newly built homes have taken up an increasing portion of housing inventory over the last 10 years, with a major acceleration in mid-2020 after the pandemic began. Home builders have been busy trying to make up for the lack of existing homes on the market and keep up with high demand.
There has been a surge in demand since the start of the pandemic, stemming from low mortgage rates and the prevalence of remote work. At the same time, some homeowners have opted to refinance or remodel instead of selling, intensifying the shortage of existing homes for sale.
Overall inventory dropped to a record low in December. Inventory of existing homes fell 14.2% year over year in December, and there was a record-low 1.8 months of supply. For new homes, there was 6 months of supply and inventory was up 34.8%.
As the share of homes for sale that are newly built has edged up, the share of home sales that are new builds has remained relatively consistent, around 11%. This dichotomy is another indicator that home buyer demand is far outpacing supply.
“A lot of pre-owned homes are being listed, but they are just selling off so quickly—typically in a matter of days—while new homes take longer to sell,” said Redfin economist Sheharyar Bokhari. “So as a home buyer, you’re increasingly likely to see new builds when you look up homes for sale in your target area. Existing homes tend to be less expensive and fly off the shelves faster, so people who are just getting into the market should speak to their lender and agent about preparing to act quickly when an existing home that meets their criteria does hit the market this winter.”
Houston has the biggest share of newly built homes for sale
In Houston, 39.5% of for-sale homes were newly built in the fourth quarter, the largest share of the 50 metros in this analysis. It’s followed by Minneapolis (38.3%) and San Antonio (37.5%). Texas metros top this list because they typically have more land to build new homes on and relatively lenient construction regulations.
On the other end of the spectrum, three California metros had the smallest shares of new-construction inventory. In San Diego, 3.1% of for-sale homes were newly built, followed by Anaheim (3.8%) and Los Angeles (4.4%). California has a lack of vacant land and less space zoned for housing development.
Building permits are up, a signal that supply of new homes will continue to rise
The number of building permits was up 6.5% year over year in December, and up 9.1% from the month before. Building permits are government-granted authorizations that allow builders to begin construction.
The uptick in building permits at the end of last year is a sign that supply and sales of newly built homes will continue to rise in 2022. Builders are betting demand from buyers will continue in the coming year as permanent remote work policies allow more people to move. More new homes in the pipeline should help boost the overall supply of for-sale homes.
Consumer desire for homeownership against persistently low supply of for-sale homes created one of the hottest housing markets in decades in 2021 — and spurred record-breaking home price growth, according to CoreLogic, an analytics and data provider.
Price appreciation averaged 15% for the full year of 2021, up from the 2020 full year average of 6%. Home price growth in 2021 started off at 10% in the first quarter, steadily increasing and ending the year with an increase of 18% for the fourth quarter.
While there have been questions surrounding whether we are in a housing bubble, the CoreLogic market risk indicators suggest a small probability of a nationwide price decline and point to the larger likelihood that a fall in price will be limited to specific markets at risk of home decline such as Prescott, Arizona; Merced, California; Worcester, Massachusetts; and Kalamazoo, Michigan.
Still, the CoreLogic HPI Forecast shows the national 12-month growth steadily slowing over 2022. During the early months of the year, it’s projected to remain above 10% while decelerating each month to a 12-month rise of 3.5% by December 2022. Comparing the average projected National HPI for 2022 with the previous year, the CoreLogic HPI Forecast shows the annual average up 9.6% in 2022.
“Much of what we’ve seen in the run-up of home prices over the last year has been the result of a perfect storm of supply and demand pressures,” said Frank Nothaft, chief economist at CoreLogic. “As we move further into 2022, economic factors such as new home building and a rise in mortgage rates are in motion to help relieve some of this pressure and steadily temper the rapid home price acceleration seen in 2021.”
Top Takeaways
· Nationally, home prices increased 18.5% in December 2021, compared to December 2020. On a month-over-month basis, home prices increased by 1.3% compared to November 2021.
· In December, annual appreciation of detached properties (19.7%) was 5.5 percentage points higher than that of attached properties (14.2%).
· Home price gains are projected to slow to a 3.5% annual increase by December 2022.
· In December, Naples, Florida, logged the highest year-over-year home price increase at 37.6%. Punta Gorda, Florida, had the second-highest ranking at 35.7%.
· At the state level, the Southern, Southwest and Mountain West regions continued to dominate the top three spots for national home price growth, with Arizona leading the way at 28.4%. Florida ranked second with a 27.1% growth and Utah followed in third place at 25.2%.