Homebuilders Aren’t Overbuilding, They’re Catching Up

<article class="post-1083736 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-1083736"><span class="entry-date">June 13, 2024</span><div class="entry-header center-block text-center"><h1 class="entry-title">Homebuilders Aren’t Overbuilding, They’re Catching Up</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=Homebuilders+Aren%E2%80%99t+Overbuilding%2C+They%E2%80%99re+Catching+Up&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fhomebuilders-arent-overbuilding-theyre-catching-up%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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</div></div><div class="post-tax post-category"><span></span><a href="../category/realtor-blog/index.html" rel="tag">Realtor Blog</a></div><div class="post-tax post-post_tag"></div></div><div class="entry-content"><div><img alt="Homebuilders Aren’t Overbuilding, They’re Catching Up Simplifying The Market" decoding="async" loading="lazy" src="https://media.agentaprd.com/sites/222/20240613-Homebuilders-Aren-t-Overbuilding-They-re-Catching-Up-original.webp" style="display: block; margin-bottom: 5px; clear: both; max-width: 100%;" width=""/>
<p>You may have heard that there are more <a href="https://www.simplifyingthemarket.com/2024/05/03/builders-are-building-smaller-homes-infographic-1/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">brand-new homes</a> available right now than the norm. Today, about <a href="https://www.simplifyingthemarket.com/2024/05/09/the-top-2-reasons-to-consider-a-newly-built-home/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">one in three</a> homes on the market are newly built. And if you’re wondering what that means for the housing market and for your <a href="https://www.simplifyingthemarket.com/2024/05/30/the-biggest-mistakes-buyers-are-making-today/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">own move</a>, here’s what you need to know.</p>
<h4><strong>Why This Isn’t Like 2008</strong></h4>
<p>People remember what happened to the housing market back in <a href="https://www.simplifyingthemarket.com/2024/04/24/foreclosure-numbers-are-nothing-like-the-2008-crash/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">2008</a>. And one of the factors that contributed to that crash was that there were too many <a href="https://www.simplifyingthemarket.com/2024/05/16/the-number-of-homes-for-sale-is-increasing/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">homes for sale</a>. While only part of the oversupply back then came from builders, the lasting impact is that some people still feel uneasy when they hear new home construction has ramped up.</p>
<p><strong>Even though the supply of new homes has grown this year, the data shows there’s no need to worry. Builders aren’t overbuilding, they’re just catching up. </strong></p>
<p>The graph below uses data from the <em>Census </em>to <a href="http://www.census.gov/construction/nrc/xls/co_cust.xls" rel="noopener noreferrer" target="_blank">show</a> the number of new houses built over the last 52 years. Following the crash in 2008, there was a long period of underbuilding (<em>shown in red</em>). And it wasn’t until recently that we finally met the long-term average for how many homes are built in a typical year. <a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240611/20240613-Builders-Aren-t-Overbuilding-They-re-Catching-Up-original.png" rel="noopener noreferrer" target="_blank"><img alt="No Caption Received" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240611/20240613-Builders-Aren-t-Overbuilding-They-re-Catching-Up-original.png"/></a></p>
<p></p>
<p>This shows, that even with the increase in new builds we’ve seen lately, there won’t suddenly be an oversupply of homes for sale. There’s too much of a gap to make up after over a decade of underbuilding. And if you’re still worried <a href="https://www.simplifyingthemarket.com/2024/04/11/builders-are-building-smaller-homes/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">builders</a> are overdoing it, here’s something else that should be reassuring. </p>
<h4><strong>New Home Construction May Be at Its Peak for the Year</strong></h4>
<p>The <a href="https://www.census.gov/construction/nrc/pdf/newresconst.pdf" rel="noopener noreferrer" target="_blank">latest data</a> from the <em>Census</em> on housing starts (homes where builders just broke ground) and permits (homes where builders can start development soon) shows builders are slowing down their pace right now. Why is that?</p>
<p>They’re responding to still high <a href="https://www.simplifyingthemarket.com/2024/05/02/what-is-going-on-with-mortgage-rates/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">mortgage rates</a> and how those are impacting buyer demand. Basically, they’re pulling back appropriately in response to what’s happening in the market. As an article from <em>HousingWire</em> <a href="https://www.housingwire.com/articles/builders-are-pulling-back-on-single-family-home-construction/" rel="noopener noreferrer" target="_blank">explains</a>: </p>
<blockquote><p><em>“Even with a massive housing shortage across the nation, homebuilders are completing their pipelines and not seeking as many permits to construct new single-family houses.” </em></p></blockquote>
<p><strong>Builders remember what happened when they overbuilt in the crash, and they’re looking to avoid a repeat of that. So, they’re being mindful and pulling back a bit.</strong></p>
<h4><strong>You May Have More Options Now Versus Later</strong></h4>
<p>If you’re considering a newly built home, here’s how this impacts you. With builders seeking fewer permits and not breaking ground on as many new homes, we may be at the peak of new home construction for the year. This doesn’t mean new home construction is screeching to a stop – just that the pace is slowing down now, and that’ll impact what comes to market later this year. As Lawrence Yun, Chief Economist at the <em>National Association of Realtors</em> (NAR), <a href="https://www.housingwire.com/articles/builders-are-pulling-back-on-single-family-home-construction/" rel="noopener noreferrer" target="_blank">says</a>:</p>
<blockquote><p><em>“Given the recent declines in housing starts, home completions will steadily show declines in about six months.”</em></p></blockquote>
<p><strong>So, if you’re ready and able to buy now, you may find you’ll have more newly built options to choose from now versus later on. This may be enough reason to kick off your search. </strong></p>
<p>Just be sure to work with a local <a href="https://www.simplifyingthemarket.com/2024/02/05/why-having-your-own-agent-matters-when-buying-a-new-construction-home/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">real estate agent</a> you know and trust throughout the process. An <a href="https://www.simplifyingthemarket.com/2024/04/09/the-top-5-reasons-you-need-a-real-estate-agent-when-buying-a-home/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">agent</a> will have valuable insight into builder reputations and other key factors specific to your market. And if there isn’t much new construction near you, they’ll be able to point you toward a nearby area where there is.</p>
<h3>Bottom Line</h3>
<p>While it’s true new home construction is a bigger segment of the market than the norm, that’s not a bad thing. Builders aren’t overbuilding, and they’re responding to market signals to avoid repeating the mistakes that were made in 2008.</p>
<p> </p>
<p>If you want to buy now while new home options may be at their peak, reach out to a local real estate agent. </p>
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