Sales of new homes are up the most since 2017, but new-home construction is lagging in the markets that need it the most.
New-home sales rose 8.8% year over year in the fourth quarter, the biggest gain in more than two years and the third-consecutive quarter of increases, driving continued depletion of inventory in the market.
New-home supply slid 11.1% year over year, the biggest inventory drop since at least 2012 and the third-straight quarter of declines.
National sale prices of new homes slipped 0.3% year over year to a median of $369,900 in the fourth quarter. That marks the smallest drop out of the past three-consecutive quarters of declines. But even though the national median price was flat from last year, many more affordable markets, including Greensboro, NC, saw prices rise.
Meanwhile, existing-home prices rose 6%, sales increased 5.8% (the largest gain in three years) and inventory slipped 14.2% (the biggest slide since 2013).
“The market has seen a mismatch between where new construction of homes are needed the most and where new homes are being built, and that’s because builders are focused on areas where they can cheaply acquire and develop land,” Redfin chief economist Daryl Fairweather said. For example, expensive cities like San Francisco have seen a decline in building permits, while construction is booming in places like Raleigh, NC and El Paso, TX, which are already quite affordable.
“The only way to solve this mismatch between where people need homes and where homes are being built is for people to move to where the homes are, and that’s already happening,” said Fairweather. “Looking ahead, permits have increased thanks to low interest rates, so even though inventory is down, there’s hope for the future given that permits are up so significantly.”
One region with a particularly large swell in building permits is Little Rock, AR, which saw a more than 200% increase in the fourth quarter.
“New-home construction in West Little Rock and surrounding cities has been surging. The area has a lot of rural space, so there’s plenty of room for expansion. Plus, it’s affordable to build here compared to other parts of the country,” said local Redfin team manager Bonnie Nixon. “One trend we’re seeing is developers demolishing older homes and rebuilding more modern ones.”
National new-home construction trends in the fourth quarter:
- New-home sales increased annually in 62 of the 88 metros tracked by Redfin.
- For all types of residential construction, building permits climbed 12.2% year over year, which was down from the three-month period ending in October, but the biggest quarterly increase since December 2015. For single-family homes, building permits rose 9.8%, up from 3% last quarter.
- Building permits per 10,000 people rose 11.3%, up from 9% last quarter.
- For new homes, the median price per square foot was $173, up 1.9% from the year before. For existing homes, it was $176, up 4% annually.
- The typical new home was on the market for 90 days before going under contract, down from 94 days the year before. The typical existing home spent 44 days on the market, down from 45 in December 2018.
- New listings of newly built homes were up 1.9%, while new listings of existing homes were down 4.8%, the most since at least 2012.
Metro-level highlights for new-home construction in the fourth quarter:
- In Raleigh, NC, 31.9% of all homes sold in the fourth quarter were newly built, the highest share of any metro. It was followed by El Paso, TX (29.8%) and Nashville, TN (29.5%).
- Just 1.2% of all homes sold in the fourth quarter in Newark, NJ were new construction, a lower share than any other metro. Second lowest was Rochester, NY (1.5%), followed by the New York metro area (1.9%).
- The rate of building permits increased most in Little Rock, AR (208.9%), Bridgeport, CT (172.1%) and Riverside, CA (118.6%).
- San Francisco saw the largest annual decline in building permits (-67.4%), followed by Milwaukee (-53.9%) and Camden, NJ (-39.9%).
- Newark, NJ had a 21% year-over-year increase in price per square foot for new homes, more than any other metro in the U.S. Next came Detroit (11.8%) and Camden, NJ (11.6%).
- Oakland, CA saw the biggest inventory rise in the fourth quarter, with a 29.9% increase. It’s followed by Newark (26.5%) and San Francisco (24.4%).
- Salt Lake City experienced a 77.3% decline in new inventory, more than any other metro. Next came Sacramento, CA (-42.9%) and Greensboro, NC (-38.7%).
- Sales of newly built homes increased 81.8% to 120 in McAllen, TX, more than any other metro. It’s followed by New Haven, CT (up 79.2% to 86 homes sold) and Tucson, AZ (up 44.2% to 349).
- Sales of newly built homes decreased most in New York, down 42.5% to 258 homes sold, followed by Salt Lake City (down 42.4% to 388) and San Francisco (down 28.3% to 66).