Keeping a pulse on new home construction is crucial for investors like us. It’s a window into what kind of housing stock will be available down the road, potentially impacting everything from rental rates to resale values. So, let’s unpack the latest data for 2024 and see what insights we can glean.
Housing Starts refer to the number of new residential construction projects that have begun during any particular month. Estimates of housing starts include units in structures being rebuilt on an existing foundation.
Building permits, on the other hand, are issued by local governments to allow builders to begin the construction of a new home or to make significant renovations to an existing home. Building permits are usually required for any new construction or remodeling that involves changes to the structural or mechanical systems of a home.
Housing construction refers to the actual building of the residential structure, which includes everything from laying the foundation to framing the walls, installing electrical and plumbing systems, and finishing the interior and exterior of the building.
The sequence of new housing construction events typically goes as follows:
A builder obtains a building permit from the local government, which allows them to start construction on a new housing unit.
Once construction begins, it is counted as a housing start. The construction process continues until the housing unit is completed and ready for occupancy, at which point it is considered part of the housing stock.
So, building permits come first, followed by housing starts, and then housing construction. However, it is important to note that not all permits lead to starts and not all starts to lead to completed construction. Some permits may expire before construction begins, and some starts may be delayed or canceled due to various reasons such as changes in market conditions or financing issues.
New Residential Construction Trends – Sept 2024
As we move into the final quarter of 2024, the new residential construction trends are showing distinct shifts that homeowners, builders, and investors should pay close attention to. Currently, the economic landscape and changing consumer preferences are impacting how new homes are designed, built, and marketed.
Key Takeaways
- Building Permits Decline: Throughout September, permits for new residential construction fell to an annual rate of 1,428,000, marking a 2.9% drop since August.
- Housing Starts Slightly Down: In September, housing starts were at 1,354,000, a modest decrease of 0.5% from the previous month.
- Housing Completions Increase: On a positive note, completions rose to 1,680,000, reflecting a 14.6% rise from a year prior.
- Shift Towards Sustainable Living: Homebuyers are increasingly looking for eco-friendly and smart technology solutions in their new homes.
- Focus on Single-Family Units: There is a noticeable uptick in single-family home construction, despite the broader declines in permits and starts.
Current Trends in New Residential Construction
The new residential construction landscape is continuously evolving, influenced by various factors including economic conditions, consumer demand, and regulatory environments. The latest data from September highlights some crucial movements in the housing sector.
Building permits for privately-owned housing units fell to an annual rate of 1,428,000, which represents a decrease of 2.9% from August 2024’s revised figures and a 5.7% decline from September 2023. This dip raises questions about future construction activity and market conditions, especially since single-family home permits rose slightly to 970,000. The uptick in single-family housing permits suggests that potential homeowners still see value in newly constructed single-family homes, despite uncertainties in the market (Source: United States Census Bureau).
Housing starts also experienced a slight setback, registering 1,354,000 starts in September, down 0.5% from August and 0.7% from the same month last year. This slower pace of new beginnings indicates a cautious approach from builders as interest rates hover at higher levels, curtailing buying power for many prospective homeowners. Nevertheless, single-family starts increased to 1,027,000, up 2.7% from August’s numbers, indicating a strong interest in individual homes.
While the starts may be slowing, housing completions have picked up substantially. In September, completions reached 1,680,000, representing a significant 14.6% increase compared to the same period last year. This growth might suggest that builders are catching up on projects that were delayed in earlier months, and it reflects a growing readiness to deliver homes to eager buyers in today’s market. The completion of single-family homes stands at 1,000,000, down slightly from preceding months but still reflecting broader trends of meeting buyer demand.
The Move Towards Sustainability and Technology
In 2024, new residential construction is leaning heavily towards sustainability and technological advancements. Today’s buyers increasingly prioritize energy efficiency, smart home technologies, and sustainable materials. This shift is encouraged by both a sense of responsibility towards the environment and potential cost savings that eco-friendly homes can offer. Features like solar panels, Energy Star-rated windows and appliances, and drought-resistant landscaping are no longer exceptional but rather expected by many consumers (Source: ECI Solutions).
Homebuilders are incorporating advanced technologies that enhance the living experience. For instance, the integration of smart home systems that control lighting, heating, and security through smartphones is becoming standard. This trend not only appeals to tech-savvy buyers but also serves to create energy-conscious homes that can significantly reduce utility bills over time.
Design Trends Shaping New Homes
In alignment with these broader new residential construction trends, design and aesthetic preferences are being reshaped. Potential homeowners are increasingly demanding open floor plans that allow for more natural light and flexible living spaces. There’s also a significant push towards biophilic design—an approach that connects indoor spaces with nature through the use of natural materials, plants, and ample sunlight. This preference reflects a growing awareness of wellness and mindfulness in residential environments (Method).
Moreover, as families seek to maximize their square footage, there’s a rising trend towards adaptable spaces that can serve multiple purposes. For example, home offices have become a critical feature as remote work becomes more prevalent. This need for versatility is leading to innovative designs that can easily transform rooms from one use to another.
Challenges Facing New Construction
Despite the favorable trends seen in completions and permits, challenges remain. Higher interest rates continue to pose a hurdle for many potential buyers, reducing their purchasing power and affecting demand for new homes. Builders are also experiencing increased material costs and supply chain disruptions that complicate project completions. This situation may force some companies to reconsider their project timelines or scale back on future developments, thereby influencing overall housing supply in the market (Fannie Mae).
The impact of zoning regulations and local building codes cannot be ignored, either. Stricter guidelines can delay starts and increase costs, making it crucial for builders to stay informed of any changes that may occur.
Looking Ahead
As we progress through 2024, the new residential construction sector is poised for both challenges and opportunities. A focus on eco-friendliness and technology will likely attract a base of buyers ready to invest in homes that promise efficiency and sustainability. The nuances in policy and consumer demands will surely shape markets across the country, making it essential for stakeholders to keep abreast of ongoing trends and adjust strategies accordingly.
New-Home Construction Forecast for 2024
As the real estate landscape continues to evolve, the forecast for new-home construction in 2024 is brimming with optimism. Home buyers, frustrated by the scarcity of existing inventory, are turning to builders for solutions. The data reveals a surge in construction activities, with builders employing innovative sales incentives to attract house hunters.
The Rise of New-Home Market
The new-home market is emerging as a dominant player, set to shape the real estate landscape in 2024. According to Ali Wolf, Chief Economist at housing research firm Zonda, the trend is expected to continue gaining momentum. Speaking at the International Builders’ Show in Las Vegas, Wolf emphasized the increasing role of new-home sales, which traditionally constituted 10% to 12% of the market for single-family homes but now account for over 30%.
Addressing Affordability Concerns
With existing-home prices soaring to record highs, home builders are proactively addressing buyers’ affordability concerns. The shortage of existing homes for sale has created an opportunity for new-home construction to cater to a broader audience. Danielle Hale, Chief Economist at realtor.com®, notes that 40% of home buyers consider buying new homes to “avoid renovations or problems,” highlighting the appeal of turnkey solutions.
Buyers’ Motivations and Incentives
Zonda’s research indicates that 40% of home buyers opt for new homes to avoid the hassles of renovations, while 25% are driven by the scarcity of existing inventory. Additionally, 25% appreciate the ability to choose and customize their home’s design. In response to these preferences, builders are introducing enticing sales incentives.
The most popular incentive, according to Wolf, has been mortgage buydowns. To ease buyers’ fears and boost confidence in the market, builders are offering financial incentives such as funds towards closing costs, with some reaching up to $20,000. Moreover, “flex dollars” are becoming a sought-after perk, allowing buyers to invest in home upgrades according to their preferences.
New-Home Construction Outlook for 2024
The momentum in new-home construction is poised to shape the real estate landscape throughout 2024. As buyers seek alternatives to the challenges posed by existing inventory, builders are stepping up their efforts to provide turnkey solutions and attractive incentives. The forecast indicates a positive trajectory for the new-home market, with affordability and customization driving the preferences of home buyers.
Builders’ Positive Outlook and Challenges Ahead
Builders are approaching 2024 with a bullish outlook, fueled by a forecast that anticipates a 4.7% increase in single-family housing starts nationwide this year. The momentum is expected to continue into 2025, with an additional 4.2% growth, reaching an impressive pace of 1.3 million units, as reported by the National Association of Home Builders (NAHB).
Meeting the Housing Deficit Challenge
However, economists are urging builders to do more to address the nation’s housing deficit. According to Robert Dietz, Chief Economist of NAHB, building over 1.15 million single-family homes annually is crucial to reducing the housing deficit. Despite the ambitious goal, builders are facing formidable challenges that hinder their capacity to build at the required pace.
Obstacles in the Path of Builders
Builders are grappling with multiple challenges, including higher prices, shortages of lumber, lots, and labor. These factors are stifling their ability to meet the growing demand for new homes. Dietz highlighted the impact of rising regulatory costs, which account for nearly 24% of the final sales price—or a significant $93,870—for a new single-family home. This underscores the complexity and cost implications of complying with building codes and zoning regulations.
Optimism Despite Challenges
Despite these headwinds, builders remain remarkably optimistic, buoyed by the surge in consumer demand. According to Ali Wolf, Chief Economist at Zonda, 80% of builders anticipate initiating more home starts in the current year. Furthermore, a substantial 51% of builders expect starts to increase by more than 10% compared to the previous year, showcasing a strong belief in the resilience of the market.
The Path Forward: Strategies for Success
As builders navigate the challenges posed by higher prices, material shortages, and regulatory hurdles, strategic planning becomes imperative. Finding innovative solutions to streamline the construction process, exploring alternative materials, and advocating for regulatory reforms are essential components of overcoming these obstacles. The commitment to meeting the nation’s housing deficit while ensuring affordability remains a shared goal among builders.
The Townhouse Boom: A Shift in Housing Trends
As builders adapt to the challenges of affordability and lot shortages, the real estate landscape is witnessing a notable shift with the rise of townhome construction. Townhouses have experienced a surge, reaching their highest rate in over 17 years, according to an analysis of Census data by the National Association of Home Builders (NAHB).
Responding to Affordability and Lot Woes
Builders are diversifying their product offerings to address affordability concerns and lot shortages. Townhome construction, characterized by single-family attached housing, has become an attractive option for both builders and home buyers. This housing style often comes with a lower price tag, making it a viable solution in the current real estate landscape.
Impressive Growth in Townhouse Starts
The fourth quarter of 2023 saw a remarkable 27% increase in single-family attached starts compared to the same period in 2022. Townhouses, overall, accounted for nearly 20% of the total housing starts in the final quarter of 2023. This surge signifies a growing preference for townhomes among home buyers, offering a more affordable and accessible housing option.
Bright Spots in the New-Home Sector
Robert Dietz, Chief Economist of NAHB, identifies townhouse markets as one of the bright spots in the new-home sector. He expresses optimism about this segment continuing to outperform, pointing to a shift in preferences among home buyers. Both young and old demographics are increasingly seeking medium-density residential neighborhoods, such as urban villages, that provide walkable environments and a range of amenities.
Meeting the Demand for Walkable Environments
The appeal of townhouses extends beyond affordability, with an increasing number of home buyers valuing walkable environments and communal amenities. Urban villages, characterized by medium-density residential developments, are gaining popularity as they offer a lifestyle that aligns with the preferences of modern home buyers.
