Cold and flu season is upon us. While you take your multivitamins to prevent a trip to the doctor, don’t forget to also take the temperature of your housing market. A lot has changed in the market over the past year:
- Builders began 2023 more pessimistic than in recent years. And that’s no surprise, given that 2022 ended with inflation hitting a 40-year high and surging mortgage rates pricing buyers out of the housing market.
- As we end the year, a lack of supply and builders’ ability to offer incentives (namely rate buydowns) are boosting demand and pricing for new homes.
Since 2013, our Research and Consulting teams have combined forces to rate new home market conditions based on sales and pricing conditions. This monthly exercise allows us to monitor and spotlight market trends using our extensive builder outreach, boots-on-the-ground expertise, and comprehensive and vetted data and analytics.
Note: this is just a taste of what our clients get to keep them current on the market.
The current state of the new home market
New home sales rates cooled month over month in many markets due to elevated mortgage rates and seasonality. Builders have kept new home sales in a normal range with rate buydowns and quick-move-in homes.
To stay on top of changing market conditions, we surveyed builders in mid-October and learned the following:
- Many builders confirm slower foot and website traffic since September, pointing to higher interest rates as a factor.
- Rate buydowns and below-market-rate originations (using forward commitments) remain necessary for many sales conversions.
- Builders must work harder for sales and align incentives with buyers’ needs and preferences.
Overall, we upgraded one major housing market and downgraded seven in October, with 20% of the top 50 housing markets now rated Strong or better (down from 37% last month):
- 2% Very Strong (upgraded San Diego)
- 18% Strong
- 67% Normal (downgraded Boston, Dallas, Lakeland, Orlando, Sarasota, Stockton, and Tampa)
- 10% Slow
- 2% Very Slow
Meager resale supply and rate buydowns lift new home demand.
The new home market shifts are powerful:
- One year ago, we rated 48% of top markets as Slow and 21% as Very Slow.
- Current new home market conditions are a stark contrast: just 10% of top markets now rate as Slow, and 2% rate as Very Slow.
Below is a snapshot of current, recent, and year-ago new home market conditions. We are updating our ratings next week to help our clients stay ahead of the ever-evolving housing market.
What we’re watching in 2024
From an affordability standpoint, buying a home is the most challenging it’s been since the early 1980s when mortgage rates were twice today’s levels. With 30-year fixed rates above 7.5%, we’re monitoring whether builders can keep offering incentives and buydowns to drive sales and home demand.
With affordability stretched, rate buydowns at or below 6% are key to navigating the “higher for longer” norm. These buydowns are getting more costly to finance, and our team has been working hard to get under the hood and share insights on how buydowns work. See our newsletters on rate buydowns here and here.
We also have an eye on listings, which remain low historically but are rising monthly in most top markets.
- Resale listings fell -13% YOY on average across the top housing markets. High mortgage rates have locked would-be buyers and sellers into their homes, which has prevented listings from flooding the market.
- Although lower year over year, resale listings started rising month over month in most top markets in May and June and have continued to increase through September.
- This inventory growth in recent months is likely due to weaker-than-normal demand rather than from a surge of sellers. Homes are taking longer to sell due to affordability constraints.
Our Research team provides clients with timely insight into where the market is headed, guided by our housing and economic forecasts for the for-sale, for-rent, and building products markets. Reach out to us if you need help assessing the health of your market.
