Considering New Construction Amid COVID
Supply-and-Demand Realities Fuel Interest in New Home Construction
An interesting swirl of action in the residential real estate market, not to mention forces fueled by the novel coronavirus pandemic, has swung the market’s supply-and-demand equation and compelled an increasing number of prospective homebuyers to ditch the resale market and contemplate new construction.
Buyers on the Prowl
As states like Illinois reopen from COVID-19, a swelling army of buyers are hopping off the fence and touring homes with masks on and taking advantage of virtual tours and other technology to view houses.
And that action’s translating into a rise in contracts and mortgage applications among hungry buyers.
After a significant dip in listings going under contract through March and into April, Compass, a real estate brokerage, reported a surge in contracts at the close of April and into May.
Inspired by interest rates hovering as low as 3.2 percent, one of the rare positive side effects of the pandemic’s economic shock, homebuyers are also overpowering banks with mortgage applications. In Illinois, the Mortgage Bankers Association has seen purchase loans jump double digits.
After weeks of homebuyers largely sitting on the sidelines amid stay-at-home orders in the typically robust spring market, their pent-up demand is stirring activity that industry analysts expect to carry throughout the summer and well into the fall.
Resale Listings Down
Just as homebuyers flood the market with hearty demand, the number of resale homes available for purchase has declined. According to data from realtor.com, total listings in May were down approximately 20 percent from the same period in 2019, while new listings plummeted about 40 percent.
Industry observers say all but the most motivated of sellers have been reluctant to welcome visitors into their home given health issues while others have decided to delay a move until some semblance of normalcy is restored.
Analysts predict the lack of inventory in the resale market will persist into the near future.
Rising Appeal of New Construction
With eager buyers out there amid dwindling inventory, the supply-and-demand equation is likely to push up prices on the resale market, increase competition for homes, and spur discontent among already frustrated buyers. The National Association of Home Builders’ recent Housing Trends Report, in fact, found buyers struggling to find the right home at the right price. Forty percent of buyers said they couldn’t find a home at a price they could afford, while 32 percent said they couldn’t find a home with the features they wanted.
Such new realities have intensified interest in new construction.
Homebuilders across the country have reported a sudden surge in demand as the resale market tightens and homebuyers seek a home that works for their needs. Anecdotally, real estate agents have seen accelerating interest in single-family homes and suburbs, where homebuilders such as Gallagher and Henry offer larger homes and plots of land that lend themselves to the stay-at-home, work-at-home culture the coronavirus ignited.
For many homebuyers, new home construction is an option they hadn’t fully considered. As resale market supply declines, interest rates remain low, and buyers clamor for homes that fit their lifestyles, however, new construction has emerged an increasingly compelling opportunity and one worth exploring.