April’s new home sales figures shined a light on a long-growing problem in the housing market: homebuilders aren’t breaking ground on the kind of houses that will alleviate supply-side pressure. Last month, the median new home price was $309,200, down 4 percent from the same period last year. While the decline in prices could point towards a shift in developers’ focus, more entry-level homes will need to be constructed to meet the demand for first-time buyers. During the housing boom in the middle of the last decade, new home prices were just 6 percent higher than existing home prices. In April, however, new home prices were 26 percent higher than the median existing home price, according to the National Association of Realtors. A spread of $64,400 between new and existing median prices is too much for most buyers to overcome, even with interest rates hovering near 4 percent.
Developers are lamenting that there aren’t enough workers to ramp up construction, but the focus on construction is the real reason for the low volume in new home sales. Currently, there are nearly eight private residential construction workers for single- and multifamily housing unit that breaks ground, which is above levels seen during the boom in the past decade. For every single-family home, there are almost 11 workers per housing start, well above the level seen in 2004 and 2005. However, high rents and elevated land costs are encouraging homebuilders to focus on multifamily buildings. Since 2011, only 67 percent of housing starts have been single-family homes, compared to 80 percent during the previous 20 years. As developers focus on apartments, homebuyers hoping to jump into the ownership pool are left with very few options.
Land, wage and material costs will continue to rise, making it difficult for builders to transition away from multifamily and into single-family homes at this stage of the recovery. As a result, entry-level homes don’t pencil out for developers, particularly in areas where the housing shortage is most profound. Coastal California and the Northeast have significant unmet demand for entry-level buyers, and could be facing over-development in the apartment sector this year. After the apartment development cycle peaks in 2017, more construction workers could become available to build single-family homes, thus easing pressure on wages. Regardless, high land and material costs will limit the compression between new and existing home prices, leaving a housing shortage at lower price points in place until an economic downturn rebalances the supply-demand equation.
HomeUnion is an online real estate investment management firm. Based in Irvine, Calif., it provides all the services needed for individuals to invest remotely in rental properties. The company uses a combination of research and proprietary analytics to incorporate data on over 110 million homes and 200,000 neighborhoods into their database, and then delivers its solutions to an on-the-ground infrastructure that currently serves 11 locations. HomeUnion’s role spans the lifecycle of the investment transaction: identifying sound investments, handling all aspects of acquisition, maximizing income, protecting asset value, and selling the asset when the time comes.
HomeUnion, Inc. (The “Company”) (NMLS# 1189576) operates investment property marketplaces for traditional and IRA based real property investing. For more information on the specific states where HomeUnion, Inc. is licensed, please visit the Licensing page on our website at: www.homeunion.com. The Company is licensed to provide mortgage brokerage services in several states (by its wholly owned subsidiary, HomeUnion Lending, Inc.), but is not otherwise a financial services, legal or tax advisor company. For more information on where HomeUnion Lending, Inc. is licensed, please visit the Licensing page on our website at: www.homeunionlending.com. The Company aggregates information for the purpose of facilitating customers’ purchases, sales and maintenance of real property investors, but the Company does not act in any way as an adviser with respect to securities. The Company is not an investment advisor. For any other financial services (except mortgage brokerage), investment advisory, legal or tax needs, please seek help from appropriate professionals. The Company is not a lender and the exact terms of the loan will be decided between the lender and investment property account holder. Any loan related information provided is for informational purposes only.