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Far Fewer New Homes at Much Higher Prices

Posted by Green Builder Staff

Sep 25, 2019 2:41:13 AM

A report from Erik Franks at John Burns Real Estate Consulting lays out the new reality of homebuilding in the U.S. The market has shrunk to about half its former size, and buying a new home is tougher than ever for middle income families.

Here's his article with links back to the original source:

Home Building Less than Half of What It Used to Be

By Erik Franks, Senior Vice President

14 years ago, construction in the top 10 markets totaled 394,000 single-family homes. Today, those markets are building 54% fewer homes! Note the huge difference in recovery.

Click here or on the graphic below to open the interactive graph in your browser. (The graph is not interactive in the e-mail.)

JBREC-Slow-Recovery-Q32019

While Houston (#3 in 2005) and Dallas (#5 in 2005) have largely recovered, the other markets have not. Atlanta builders are building 36,000 fewer homes than in 2005, and Phoenix builders are building 37,000 fewer.

Chicago, Riverside-San Bernardino, and Las Vegas stand out the most, building just 18%, 21%, and 29%, respectively, of peak construction levels of 2005/2006! Chicago has fallen from the 7th-largest single-family housing market in the country to the 32nd-largest market.

We get asked all the time when the US will return to 1 million or more single-family housing units, and our quick, somewhat flippant answer is “when the builders can make money selling 1 million homes.” Cost increases at every step of the way have pushed home prices to a point where home builders find it very difficult to build homes priced $250,000 and below in places where most people want to live. 

There is plenty of total housing demand, but most of the demand is below today’s new home prices. In 2003, before subprime lenders broke the rules, half of the new homes in the country were priced below $191,000. Today, half of new homes are priced above $313,000, and 15 of the 18 largest publicly traded home builders sport an average sales price north of $365,000.

Click here or on the graphic below to open the interactive graph in your browser. (The graph is not interactive in the e-mail.)

JBREC-Home-Builder-Average-Sales-Price-Q32019-Updated

Our builder clients are pivoting to address the mismatch of demand and supply of new, lower-priced homes. According to our recent survey, 55% of entry-level builders are building on smaller lots, 45% are building smaller homes, 39% are using less costly materials, and 33% are moving further from the job centers. That is a good start, but we have a long way to go to get back to 1 million single-family homes per year.

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