Why Are Home Prices So High? Because Not Enough New Ones Are Going Up
Why Are Home Prices So High? Because Not Enough New Ones Are Going Up
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Relief may be a long time coming for home buyers who have grown frustrated by the lack of properties for sale—and the bidding wars and price jumps that result.
The number of newly built homes in April fell 5.8% from a year earlier, to just 72,600, according to the U.S. Department of Commerce’s monthly new residential construction report. They were down 6.4% from March.
The new home construction numbers were not seasonally adjusted, which means they weren’t smoothed out over a 12-month basis to compensate for seasonal fluctuations.
In what appeared to be a spot of good news for buyers, there was a nearly 15.7% bump in the number of homes still under construction in April (999,300) compared with a year ago. It was up 2.5% from March. But that might not be enough.
“The level of single-family [home] construction is not enough to make a dent in the limited inventory of homes for sale,” says Jonathan Smoke, realtor.com®’s chief economist. “In the strongest markets in the country, we’re going to continue to see rapidly moving homes for sale, multiple bids on the most desired properties, and above-average price increases.”
He expects that first-time home buyers, who often don’t have quite as deep pockets as the existing homeowners they may be bidding against, will be particularly hard-hit.
Smoke was particularly worried about the drop in permits issued to erect new multifamily residences, which are typically apartment, condominium, and co-op buildings. There is a shortage of affordable rental properties.
New rental buildings are often very expensive to construct and therefore skew toward the luxury segment of the market. But the slowdown in that area, due to the glut of high-end units on the market in cities like New York, may be causing builders to hold off putting up new residences.
The impact? “We already have very low vacancies, and that’s causing rents to increase,” Smoke says.
In more less-than-encouraging news, the number of building permits issued, which will dictate how many new homes go up, was up only 0.72% from March to April, to just 98,400, according to the report. It was down nearly 7.2% from a year ago.
For multifamily abodes, with five units or more, permits dropped nearly 26%, to 28,200, in April 2016 compared with the previous year. They were up slightly at nearly 3.3% from March.
Almost half of all of those new construction permits for single- and multiple-family dwellings, 48,800, were issued in the Southern portion of the country. Next up was the West, with 23,600 new permits.
“The South and West represent the highest growth areas of the country,” Smoke says of more people moving to those parts of the U.S. “It naturally follows that there should be more housing stock in those areas.”
In Raleigh, NC, developers are tearing down small homes to put up larger ones in their stead and building on any scrap of vacant land they can find, says local Realtor® Ann-Cabell Baum Andersen of the Glenwood Agency Real Estate. She’s also seeing new subdivisions go up on former farmland about 20 to 30 minutes away from the state capital.
“We’re seeing a tremendous amount of new construction,” Baum Andersen says. “We’ve had a good number of companies move to the Raleigh area. … They’re bringing people in from all over the country.”
The warm-weather and Western states were followed by the Midwest, at 17,300 permits, and the Northeast, at 8,600 permits, according to the report.
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