We study nationwide new home starts because it affects housing supply, which affects home prices.
During the last housing bubble builders stopped building which led to an under supply of new homes coming to the market. Consequently, we estimate we were about 1.5 million homes nationwide short of keeping up with demand.
As you can see from the chart, from 2008 to 2021 we did not build enough homes. In 2021 and 2022 we surpassed the 1 million home mark, but in no way could that make up for the nationwide new home starts deficit from the preceding 12 years.
Need 1 Million New Home Starts Annually
Traditionally we need about 1 million nationwide new home starts every year. We didn’t make that number in 2023. This year the National Association of Home Builders met in Las Vegas and predicts they will build about 988,000 units, up 4.2% from last year. NAHB also predicts they will build about 1.03 million in 2025. These numbers are predicated upon the assumption the Fed will reduce rates 2 to 3 times this year, and even more in 2025.
We agree the Fed will reduce rates. We’re not sure if it will be this year, or if it will be 2-3 times in 2024. If the Fed does not reduce rates in 2024, the NAHB prediction of 988,000 new homes being built might be in jeopardy. The good news is homes are not built in a day. Because they are forecasting these rate cuts later in the year, they would have to begin building homes earlier. This means that even if they are wrong on when rate cuts will occur, they might still start close to that number.
Nationwide new home starts can impact future home prices. When the country does not have enough resale inventory and new home sale starts, prices can go up if there is buyer demand. People need to live somewhere, and housing has not been keeping up.
Muti-Family Construction
Many apartments have been built to keep up with demand. Demand was so high rents kept escalating. Some say builders overbuilt in this sector, which could lead to lower rents. If rents got low enough, it could temper buyer demand if it’s a better deal than buying in the minds of renters.
In Southwest Florida we have a nice selection of resale homes. Currently we have about a 6-month supply of homes on the market. Once rates start declining, home buyer demand should increase.
If resale inventory declines, will the tepid new home starts be enough? Will more sellers decide to list, and what will that do to local inventory? You begin to see future home prices are a math equation influenced by existing homeowners and their desires to stay or list, new home starts, interest rates, affordability, and rent prices. The variables change by the week, and this is why we study the macro numbers so our clients have the very best information to make decisions.
Thinking of Selling?
If you’re thinking of selling, you’re probably asking yourself when the best time is. We say this, because this is the question we get asked the most. The answer is it depends on what you own, where you’re going, and your timeframe.
We cannot give blanket answers. Each situation depends on your circumstances. What we can do is sit down with you, listen to your goals, and offer advice based upon your needs. The Ellis Team isn’t in this to make a sale. We do this to solve a need.
If you’d like to speak with Sande or Brett about your situation, call us at 239-310-6500 We’ll be happy to sit down, evaluate your home, and listen. We’re free to talk to, but it can sure cost you not to speak with us.
Or visit www.SWFLhomevalues.com to get a good idea of what your home is worth. We can talk when you’re ready.
Good luck, and Happy Home Selling!