More than one-third (34.1%) of U.S. single-family homes for sale in December were new construction, up from 25.4% a year earlier and the highest share on record, according to a new report from Redfin.
Newly built homes have taken up an increasing portion of U.S. housing inventory over the last 10 years, with a major acceleration in mid-2020 after the pandemic began. Homebuilders have been busy trying to make up for the lack of existing homes on the market and keep up with high demand. There has been a surge in homebuyer demand since the start of the pandemic, stemming from low mortgage rates and the prevalence of remote work. At the same time, some homeowners have opted to refinance or remodel instead of selling, intensifying the shortage of existing homes for sale.
Overall inventory dropped to a record low in December. Inventory of existing homes fell 14.2% year over year in December, and there was a record-low 1.8 months of supply. For new homes, there was six months of supply and inventory was up 34.8%.
As the share of homes for sale that are newly built has edged up, the share of home sales that are new builds has remained relatively consistent, around 11%. This dichotomy is another indicator that homebuyer demand is far outpacing supply.
“A lot of pre-owned homes are being listed, but they are just selling off so quickly – typically in a matter of days – while new homes take longer to sell,” says Redfin Economist Sheharyar Bokhari. “So as a homebuyer, you’re increasingly likely to see new builds when you look up homes for sale in your target area. Existing homes tend to be less expensive and fly off the shelves faster, so people who are just getting into the market should speak to their lender and agent about preparing to act quickly when an existing home that meets their criteria does hit the market this winter.”
In Houston, 39.5% of for-sale homes were newly built in the fourth quarter, the largest share of the 50 metros in this analysis. It’s followed by Minneapolis (38.3%) and San Antonio (37.5%). Texas metros top this list because they typically have more land to build new homes on and relatively lenient construction regulations.
On the other end of the spectrum, three California metros had the smallest shares of new-construction inventory. In San Diego, 3.1% of for-sale homes were newly built, followed by Anaheim (3.8%) and Los Angeles (4.4%). California has a lack of vacant land and less space zoned for housing development.
The number of building permits was up 6.5% year over year in December, and up 9.1% from the month before. Building permits are government-granted authorizations that allow builders to begin construction.
The uptick in building permits at the end of last year is a sign that supply and sales of newly built homes will continue to rise in 2022. Builders are betting demand from buyers will continue in the coming year as permanent remote work policies allow more people to move. More new homes in the pipeline should help boost the overall supply of for-sale homes.
View the full report here.
