National Housing Market Outlook

The Shiny Appeal of Newly Built Homes: John Burns on MarketWatch

Dillan Krieg photo
Cara Lavender Headshot photo

Dillan Krieg

Cara Lavender

December 4, 2023
The Shiny Appeal of Newly Built Homes: John Burns on MarketWatch

“Very low demand and even lower supply.” That’s how CEO John Burns described the housing market in his recent interview with Aarthi Swaminathan on Barron’s MarketWatch podcast. Key insights from their discussion include:

  • The forces driving the market
  • Trends we have our eyes on
  • Predictions for what comes next

The forces driving the market: supply shortages and builder strategies

  • The resale market is starved of supply. Due to elevated mortgage rates, existing home sales are on track for their worst year since 2008.
  • Home builders are taking market share. With the dearth of resale supply, home builders are increasingly becoming the only game in town, keeping the new home market roaring in 2023.
  • Builders are generating sales with heavy incentives. Thanks to historically high builder margins and new home prices, builders are using mortgage rate buydowns and other incentives to generate sales. About 33% of builders reduced their prices (including increased incentive use) in October per our latest home builder survey, keeping their sales above seasonal expectations.

Key trends: land development, regulatory changes, and shifts in home sizes

  • Land development is costlier than ever. Low investment in land development has kept the supply of developed land sparse. That means many builders have had to start developing land themselves, which is both costly and risky.
  • Change is on the horizon. Government initiatives promoting office-to-residential conversions, the recent NAR commission collusion ruling, and diverse state and local regulations may shape future industry dynamics.
  • Builders are building smaller and denser homes as a solution to the affordability crisis. These smaller homes are becoming more popular among younger buyers.

Predictions: builder dynamics and economic watchfulness

  • Low community counts hinder builders’ growth. Low community count growth will limit new home sales next year. Builders still have growth intentions for 2024, however, and many under-construction homes will help fuel sales.
  • Builders are more concerned about the economy than mortgage rates. Rising rates in a strong economy are manageable for builders, but a serious recession would shut down the housing market.
  • Large builders shine; smaller builders fall behind. Large builders, particularly public ones with immense capital backing, have captured much of the labor supply and volume in the market at a very low cost. Smaller builders are unable to compete, especially as financing costs rise. Public builders now account for about 41% of all new home sales, one of the highest percentages in recent memory.

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About The Author

Dillan Krieg photo
Dillan Krieg
Research Analyst II, Surveys
Dillan produces and analyzes our for-sale survey reports, including our Builder Survey, Real Estate Agent Survey, Land Survey, and Master-Planned Community Survey. He also covers the 6 major Northeastern markets for our monthly Metro Analysis and Forecast report and assists in our Short-Term Market Rating process.
Cara Lavender Headshot photo
Cara Lavender
Research Manager, Surveys
Cara provides timely and accurate insights on housing market trends at the metro, regional, and national levels by analyzing emerging qualitative trends and local quantitative drivers to assess their impact on the industry.

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