Residential New Construction Sales Skyrocket, and For Good Reason

Sales figures for New Construction homes closed in July are not in just yet. But I’ve spoken with several builders in the past few weeks and they’ve told me they are crazy busy, even having difficulty keeping up with the limited number of lots they are permitted to release for sale each week. The timetable for a newly built home from contract to close, is running anywhere between 7 and 8 months in the suburbs, and up to 10 months in the metro Phoenix area. In addition to a steady stream of home buyers, builders have been dealing with a severe shortage of skilled laborers.

The Phoenix area’s resale-listing inventory has hit an all time low. Many resale listings in price ranges under $400,000 are the object of multiple offers and sometimes, outright bidding wars, turning home buyers in the direction of new construction. This coming right at a juncture of higher wages for contractors and rising building supply costs.

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Arizona’s statistics for increased percentage of new home sales closely resembles national data in the RISMedia article below. These numbers are not expected to level off any time soon. One local builder predicts that based on the volume of permits pulled for the construction of new residential buildings, this trend will likely last for at least the next 24 months.

Driving both the resale and new construction industries, are record low mortgage interest rates, sometimes under 3%.

I don’t see much of this changing before the close of 2020. The backlog of demand from the first six months of the year will take at least that long to polish off, and the FED seems to have no plans to upend our precarious economy by raising interest rates.

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New-Home Sales Increase for Second Consecutive Month

By RISMedia Staff

New-home sales increased for the second consecutive month, going up 13.8 percent above the revised May rate and 6.9 percent above the June 2019 estimate of 726,000, according to the latest Commerce Department monthly report.

Here’s the market breakdown:

New-Home Sales: 776,000
For-Sale Inventory: 307,000
Months’ Supply: 4.7 months
Median Price: $329,200

What the Industry’s Saying:

“While Wall Street may have been expecting a smaller gain, anyone following the NAHB/Wells Fargo Housing Market Index would know these numbers are in line with what we are hearing from builders. Builders are moving to ramp up production to meet growing demand.” — Chuck Fowke, Chairman, National Association of Home Builders

“Along with rising builder sentiment, we are seeing increasing consumer demand in the suburbs, exurbs and rural areas. At the same time, builders are dealing with supply-side concerns such as rising material costs, particularly lumber, which surpassed its 2018 price peak this week. Nonetheless, low inventory levels point to construction gains ahead.” — Robert Dietz, Chief Economist, National Association of Home Builders

“Record-low mortgage rates and pent-up demand from the spring continue to be main drivers for the housing market this summer. New-home sales picked up for the second straight month in June, in line with various other housing market indicators showing strong demand following the pandemic-induced low in April. The 776,000 unit sales pace for June was the strongest since July 2007, and is an increase of almost 14 percent nationally over the month. Sales were up 7 percent year-over-year, and all regions except for the South were back to a sales pace higher than a year ago. Data from MBA’s Builder Applications Survey—released earlier this month—showed a similar increase in the demand for new home purchases.” — Joel Kan, AVP of Economic and Industry Forecasting, Mortgage Bankers Association
Reprinted with permission from RISMedia. ©2020. All rights reserved.