Putting Aloe on the Burns of a Hot Market

Today’s market trends move as fast as Allyson Felix in the Tokyo Olympics (well, maybe almost as fast). Thankfully, Jody Kahn, our Senior Vice President, surveys local home builders overseeing 15%–20% of national new home sales every month to keep a close eye on these fast-moving trends.

Here are some key takeaways from this week’s New Home Insights podcast with Dean Wehrli and Jody Kahn.

Featured guest

Jody Kahn, Senior Vice President, John Burns Research and Consulting

Hot Market Challenges and Consequences

Sold out! Builders have sold out of many communities and now have 17% fewer communities than one year ago.

19% price hikes. One builder raised prices 65% last year. No, that is not a typo. New home price hikes averaged 19% across the country in the last year.

Struggling to finish the home. Labor and material shortages have led to longer build times and cost increases everywhere, including having to use substitute materials and products.

Not an affordability problem for everyone. Rising prices have worsened affordability, squeezing out some potential home buyers. However, many home buyers who are able to work remotely at least part time are relocating to more affordable areas and are easily able to afford the higher prices. This is the result of a term we coined in May 2020, The Great American Move.

Slower sales. Sales have slowed, but it is certainly not slow out there. Sales normally slow in the second half of the year; they did not slow in the back half of 2020.

Builder and Buyer Behavior

FOMO has slowed. Buyer demand remains hot but less frenzied. Fewer buyers are “panic buying.”

Spec building has grown. Builders are building more unsold homes, or “speculative” homes. They are offering more homes for sale long after construction has begun to get a better handle on construction costs and to benefit from the price appreciation during construction.

Early signs of price discounts. Cash incentives and selling agent bonuses on unsold and completed homes have returned at a few communities. Most builders did raise price in July though.

A Look into the Future

Expect more new homes for sale soon. Construction has increased, and more homes will be offered for sale as they near completion.

New home community supply won’t surge. With 67% of land brokers reporting that fewer lots are available for sale and brokers reporting fewer bidders on land, we don’t expect a massive increase in construction as some have feared.

Watch “sister city” migration patterns. Jody has a close eye on cities receiving large levels of in-migration and is looking to creative resources such as car-moving services, who are reporting that a migration from Florida to the Northeast is not occurring, even during the brutal summer months in Florida. The “sister cities” are the markets to watch most closely.