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Jun 27, 2017

A Thinning Home and Rental Market is Fueling New Home Construction


The housing market continues to welcome new consumers, yet the options for those consumers are fast evaporating. For a variety of reasons, existing housing opportunities are not rising to meet in market’s growing demand. Combine this decline with an influx of exciting new advancements in the building products industry and the increased call for green building materials, and the results could mean accelerated growth for new home construction. We have explored the changes in construction materials and methods in past articles, but with this article we focus on the financial and statistical reasons why new home construction continues to climb while other housing situations dwindle.

Existing Home Purchases Lose Momentum

On the surface, the immediate information available insinuates that existing home purchases are relatively healthy. May 2017 saw existing home sales rise just a little over one percent, but this followed a considerable decline in April. A number of factors play into the gradual deceleration of existing home sales. The first place we can look to gain perspective on this trend is continual rise in the median price for existing homes. The market has witnessed 63 straight months of year-over-year gains. These gains are a direct result of supply and demand economics, which sees the availability of existing homes continue to decline, resulting in higher demand and thus higher prices. This has created an issue of affordability in regards to existing homes, encouraging new home buyers to consider new constructions over existing.
Nowhere to Rent

Another factor at play is the decline in rental availability. In 2016, rental vacancy hit a 30-year low. What’s more is that while there continues to be a growth in multifamily construction, the price range of rental properties being produced does not coincide with the pricing needs for the most in-demand segments of the rental population. This does not directly correlate into new home construction, but it does portray a reduction in alternatives for home seekers who are having difficulty finding existing homes that meet their needs and are within their budgets. If a prospective home buyer cannot find an existing home that checks all boxes, and they can’t find temporary relief with a rental, then it stands to reason that new home construction may become a viable option for them.
What the Numbers Say
Last May saw sales for newly constructed, single-family homes rise almost three percent. This is more than 12% growth over this time last year. According to the chief economist for the National Association of Home Builders, a growing consumer base combined with a depleted inventory should influence new home construction. Additionally, as more potential home buyers continue to find and retain employment, the consumer base in search of more permanent housing options only continues to swell. But there are only so many current living properties, which means it is a  responsibility of the incoming consumer market to solve this issue, and there is no more likely scenario then that they will be responsible to solve this issue by engaging in new home construction.

Whether it is rising prices, depleted resources or the forfeiture of options, it is clear that new home construction is experiencing a resurgence. Not only is this a strong reflection for the state of the economy as it makes apparent the rise in employment and the growing security that allows more consumers to enter the market. This is an exciting prospect for the building industry, as this growth resonates throughout the industry, affecting nearly every facet of the building materials sector. Such consistent growth for the market means consistent growth for your organization, and like the supply and demand issue facing the existing home market, a similar supply and demand for talent will ensue. With nearly thirty years of industry connections, Davalyn has access to some of the most proven and dynamic candidates in the world of new home construction.

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