Homebuyers faced with few options on the resale market were quick to snatch up newly built homes this spring, a trend that is likely to continue this summer.
"Builders are feeling great right now, because that’s where the interest is – in that new inventory that’s coming onto the market," National Mortgage News Editor-in-Chief Heidi Patalano told Yahoo Finance Live (video above), noting that mortgage applications for new homes increased 16% from last year and 8% from April to May. "So there’s really a surge in new inventory."
Sales of newly-built homes jumped by 12.2% to a seasonally adjusted rate of 763,000 units in May from a downwardly revised April rate of 680,000, a government report cited Tuesday. That was 20% above year-ago levels and well above the Bloomberg consensus expectation of 675,000 units for May.
The increase in sales also underscores what builders had indicated in their latest earnings calls – that more homebuyers are turning to new homes as the inventory of previously-owned homes continues to shrink.
"People are really optimistic about what’s coming on to the market," Patalano said.
‘Builders are catching up’
The low share of previously-owned homes in today’s market has given builders incentives to break ground at a faster pace.
The construction of both single- and multi-family homes increased 21.7% to a seasonally adjusted annual rate of 1.631 million units in May, the Census Bureau reported. Permits to build and housing starts also registered month-over-month gains.
That uptick in future inventory has fortunately given buyers some options as rate-trapped homeowners remain reluctant to list their properties for sale.
More than a third of homes on the market were new construction this spring, the National Association of Home Builders found, a share that historically has averaged 13%. Still, that uptick in inventory falls short of solving the deficit of homes on the market.
According to a separate study by Zillow, the US has a deficit of 4.3 million homes as of 2021.
"It’s a lot of catching up from backlogs of COVID with those constraints. There is a little bit extra coming on because they’re just really catching up to what they were so far behind before," Patalano said.
Interest in manufactured homes rises
Another solution to the lack of inventory could be the construction of ‘granny flats’ – otherwise known as accessory dwelling units (ADUs).
"There’s a really interesting push for manufactured housing at this point," Patalano said.
Small manufactured homes could also be more affordable. For instance, in San Bernardino, the median sold home price was $488,000. However, the cost of a prefab house that measures between 430 square feet and 690 square feet could cost $289,000 for studios and $369,000 for a two-bedroom unit, according to Samara, a builder of ADUs in California.
"People are really starting to understand that the manufactured homes of today are quite different from what might be in your mind of those that you know were made 10, 20, 30 years ago," Patalano said. "They are better constructed. They're customizable. They're built to last. It's sustainable materials and I think the younger generations are a lot more open to that."
Gabriella Cruz-Martinez is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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