According to the latest Redfin analysis, some 29% of U.S. single-family homes for sale in Q3 were new construction — the highest share of any Q3 on record. That’s up from 25% in the Q3 of 2021 and 18% in Q3 of 2020. Numbers typically hit an annual peak in Q1, and troughs in the second or third quarter, while the highest share of any quarter on record was 34% in Q1 of 2021.
Newly-built homes have been taking up a growing portion of overall housing supply since 2011, when building started to rebound after the financial crisis. The trend is now intensifying due to a surge in construction during the pandemic and a recent slowdown in existing homeowners putting their houses up for sale. Single-family housing starts rose 14% year-over-year in 2021, the largest annual increase since 2013. As a result, more single-family homes housing units were completed in Q3 than any quarter since 2007. In September, the number of completed new homes for sale was up 19% from the August.
“Homebuilders started scores of projects during the pandemic moving frenzy and are now stuck with a bunch of new houses that are hard to sell because mortgage rates have risen to 7%,” said Faith Floyd, a Redfin real estate agent in Houston. “Builders are giving away everything but the kitchen sink to attract bidders. Many are offering to buy down the buyer’s mortgage rate by 1.5 points, and I’ve seen at least one offer a $10,000 check for closing costs, a $3,000 gift card and a free fridge. This one way builders will dig themselves out of the hole they’re in.”
Builders are also dangling incentives in front of real estate agents. Floyd said some are offering agents a 5% commission, up from 0% during the pandemic and the typical 3% before the pandemic, in addition to bonuses of $6,000.
The top 10 major metros that saw the highest shares of newly-built homes were in:
“Many builders are offering more incentives than regular sellers," Floyd continued. "A lot of individual sellers are still pricing their homes too high because they’re having a hard time accepting that the pandemic housing boom is over and they’re not going to get 30 offers like their neighbor did last year.”
With a glut of inventory on their hands, builders will likely ease up on construction in 2023, according to Redfin Deputy Chief Economist Taylor Marr.
“Homebuilders will take on fewer new projects next year as they focus on getting their existing projects sold,” Marr said. “Builders will also shift more toward multifamily units, for which there is still relatively high demand because rents remain high.”
Pandemic Boomtowns have relatively high shares of new homes
Many of the metro areas with relatively high shares of new homes for sale ramped up building during the pandemic because they exploded in popularity with out-of-town buyers, and are now experiencing significant slowdowns within their housing markets. More than half of the metros in the top 20 are in Texas or Florida — hot pandemic migration destinations with room to build. More than 25% of the top 20 are now on Redfin’s list of fastest cooling housing markets. In El Paso, Texas, newly built single-family homes made up half of all homes for sale in Q3 — the highest share among the 80 major metros with sufficient data that Redfin analyzed.
The southwestern Florida metro of North Port was consistently one of the top migration destinations during the pandemic because of its relative affordability and climate. That caused home prices and construction to surge, while building permits in North Port soared nearly 70% year-over-year in 2021, while home prices rose 21%. It’s now one of the fastest cooling markets analyzed by Redfin. That’s causing many existing homeowners to hold off on listing, which is causing listings of newly-built homes to take up an even larger share of the market. North Port was also hit hard by Hurricane Ian in late September, and has since seen a large drop in sales and new listings as a result — intensifying the market slowdown.
To read the full report from The M Report, click here.