The housing market plays a vital role in the overall health and stability of an economy. In recent years, the United States has been grappling with a housing shortage, resulting in skyrocketing prices and limited options for potential homebuyers. As the demand for housing continues to outpace the available supply, the importance of building new homes cannot be overstated. The latest data from Freddie Mac estimates that the US has 3.8 million fewer houses than needed.1 However, amidst this challenging situation, there is a glimmer of hope. Recent data has shed light on the growing trend of new home construction and the urgency it presents.
In May, Realtor reported that construction on new single-family homes jumped 21.7% in order to meet strong demand from prospective buyers. Housing starts are also on the rise reaching 1.64 million in May from 1.34 million in April. This pace of construction was the highest since April 2022. ProBuilder writes, “New construction is a bright spot in an otherwise despondent housing market. For the buyers who brave 6% mortgage rates, there are few options in the resale market, which continues to funnel demand for new homes.”2
As prices continue to rise, affordability becomes a pressing concern for many individuals and families. The construction of new homes provides an opportunity to introduce more affordable housing options into the market. At the end of May, Redfin reported the number of active homes for sale fell 7.1% year over year, to the lowest level since they began tracking in 2012.3 By diversifying the housing stock and offering a range of prices, new construction can open doors for individuals who were previously unable to enter the market.
Moving forward homebuilders have gained confidence in the housing market outlook. The National Association of Home Builder’s monthly confidence index rose another 5 points in June to 55, the sixth month in a row the index has improved and the first time in almost a year that builder confidence moved into a positive territory above 50.4 With new listings down 22% from last year homebuyer demand is likely leading the way for this positive outlook. Robert Dietz, Chief Economist at NAHB also pointed out “A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year. And with the Federal Reserve nearing the end of its tightening cycle, it’s good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”5