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Homebuyers Get Welcome News About Inventory But Theres a Catch

The rate of single-family home completions increased 12% from January to February. Here's why that's good news, with a catch, for homebuyers.

March 17, 2022
March 17, 2022
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In order for home prices to level off, supply and demand need to stop running in opposite directions and head for something that resembles balance.

In a shred of welcome news for homebuyers, it seems supply took a step in the right direction.

Single-family homes completions increased 12% from January to February to a seasonally adjusted annual rate of just over 1 million homes per year, according to the US Census Bureau.

The 12% completion rate increase from January to February is the largest in at least 18 months, and a positive turn of events after a disappointing January building report.

Builders also made significant gains in starting new single-family homes by breaking ground at a rate of 1.215 million units per year. Home starts are not only a precursor to completions, but a sign that builders are comfortable opening new projects despite shortages of lots, labors, and materials.

But there’s a catch…

New homes make up a record 34% of inventory, according to Redfin, and play a crucial role of satiating today’s unprecedented housing demand. So builders bringing more inventory online is a small step toward balance in the housing market.

However, there’s a catch.

New homes are more expensive to buy and build than ever. Due to the rising costs of lots, labors, and materials, builders are spending exorbitant amounts of money to complete homes at a historically average rate.

The construction spending reports aren’t out for February yet, but in January builders were spending an average of $440,000 per single-family home completion.

The additional building costs are passed on to buyers. And since housing inventory is in dangerously short supply, competition between buyers can drive up sales prices even further.

Like all things housing, these new home prices vary largely based on location. In some markets new construction may be too expensive for first-time and low-income homebuyers. In others, new builds are actually quite affordable.

Here are the 10 most affordable markets for buying a new home:

Unfortunately, there is no silver bullet that will stop or reverse home price growth. But any increase in inventory is a step in the right direction. Even in areas where new construction is out of reach for first-time buyers, the additional inventory could help free up more affordable existing homes.

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