As we approach the start of 2020, our metro cities are reportedly prospering with high job growth and low-interest rates. With this combination of factors in place, the demand for new housing continues to stress homebuyers as relatively few properties are available to meet that need. While there are different opinions on how selling and buying will stack up in the upcoming year, one thing for certain is the critical need for new housing.
Millennials and New Housing
The U.S. Census projects that the 18 to 44-year-old population, which includes a significant share of the new construction home buying demographic, will increase by seven million from 2020 to 2030. This millennial generation is stoking demand and is a growing customer base for attainably priced housing. Although the national average of total sales for new homebuilding sits at a modest 12% today (compared to 16% of total sales between the early to mid-2000s), this percentage varies widely in each market. While some areas like Raleigh or Austin are at the higher end of the spectrum of new home market share, there is still a large gap in what are termed “millennial counties” where new home sales are lagging.
“Millennial counties” are defined by NAHB as geographic areas where at least 26 percent of the population consists of this growing demographic group. The “counties” are diverse and note greater concentrations of millennials. This is where most of the single-family and multi-family construction in the U.S. is occurring. However, these same areas have also recently seen relatively weaker rates of new home construction, highlighting the need for new inventory to address today’s supply and demand imbalance.
The Economic Impacts of New Housing
New homebuyers play a vital role in contributing to the larger US economy, along with their local communities. We know that homebuilding results in robust economic benefits and have talked about this in the past, but new research comparing new home buyers with existing home sales continues to tell that story now more than ever.
According to the National Association of Home Builders, it is calculated that for every 1,000 average single-family homes built, 2,975 jobs are created and $111 million in taxes and fees are generated. This is considerably higher than the 500 jobs attributed to 1,000 existing home sales. New home buyers also spend more when compared to those purchasing an existing home. New home buyers may upgrade appliances and interior construction finishes, but they also need furnishings, draperies, refrigerators, washers and dryers, in some cases landscape and other aftermarket purchases. This added value surrounding the creation of new home neighborhoods brings prosperity to the community, its local business owners and their employees.
While builders and developers are aware of the supply shortage and the opportunities created by today's demographics, there are still supply-side constraints like labor, government regulation, construction costs and land availability which continue to add stress to the market.
Homebuilder Confidence Highest in Years
In spite of these challenges, it was recently reported that Homebuilder confidence in the market for newly-built single-family homes increased five points to 76 in December - the highest reading in over 20 years (since June 1999). The impact of this improved sentiment, as well as other positive market conditions (below), are important to consider as we move into 2020. These current positive national market conditions include:
These above conditions suggest that increasing population, job growth, and low-interest rates could motivate homebuilders to move forward with greater speed.