As New Construction Home Sales Continue to Slide, Rising Home Prices Could Boost Industry
The Main Point: While an abundance of new construction homes is generally an indicator of a healthy economy, Bloomington-Normal continues to see a slump in home building, said John Armstrong, President of the Bloomington-Normal Association of Realtors (BNAR). However, a recent boost in local market inventory and gains in home prices could encourage new home sales growth.
Why New Construction Took a Hit: Buyers are willing to pay a premium for new construction homes, but can’t spend beyond their means, Armstrong said. The smaller the price difference between new and existing homes, the more likely buyers are to choose new construction.
“As [existing home] prices go up, that should fix new construction, but prices definitely haven’t gone up like they were in the early 2000s,” said Armstrong. The National Association of Realtors (NAR) reported builders across the nation face labor shortages, rising land and materials costs, regulatory delays and difficulties obtaining financing, all of which drive up overall costs.
The Data: A joint report by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development showed the median price of a new home nationally was $335,400 in December 2017, up about 2.6% over the previous year. That’s also nearly 35.9% higher than the $246,800 median price tag of an existing home, according to NAR data.
What it Means for Builders: With higher construction costs and diminished existing home price growth, “it’s less lucrative to be a builder right now,” said Armstrong. It also means fewer jobs--the NAR estimates that every new home built creates two full-time construction jobs. “So if we build 100 more houses in Bloomington in one year, we’re putting 200 more people to work,” Armstrong said.
Rewind: Armstrong said the industry has yet to return to peak numbers seen in the early 2000s. Within the last 12 months, the BNAR tracked just 110 new construction homes sold, compared to 655 within the same 12-month period in 2013. “So if we go back 15 years ago, new construction was about six times what it is today.”
Recent Activity Could Encourage New Home Sales: Bloomington-Normal’s housing inventory has risen 7% just in the last two weeks, Armstrong said. As the market enters the busy Spring season, buyer activity is expected to increase.
“There’s a lot of pent-up buyer demand in Bloomington-Normal.” Buyers who couldn’t find the homes they wanted thanks to last year’s low inventory are ready to take advantage of more options on the market.
Armstrong said 2017 was also a strong year for price growth among existing homes, a trend likely to continue this Spring. “Usually when you see price growth, it’s because the sellers are negotiating less, because homes are selling quicker.” Already Armstrong said homes that usually would take 30-60 days to sell are spending just a few days on the market, meaning sellers can get closer to their asking prices.
While recent changes at the Twin Cities’ largest employer have played a factor in the bump in local inventory, residents are selling for a number of reasons, Armstrong said. “Some of them have just outgrown their homes...They’re moving because their families have changed, life has changed, and they just need a different style of house.”
Key Takeaway: Although sales of new construction homes are down, home sales overall should see a boost this Spring with buyers hungry to take advantage of welcome inventory gains and sellers using higher prices to trade up.