And investors should be concerned about homebuilders. More than three-quarters of American homes begin to be built without a sales contract, according to the Census Bureau. If home prices fall between construction and completion, homebuilders are struggling with the loss. This is particularly true in the case of firms such as DR Horton, which almost exclusively build “homes with specifications” where construction begins without a valid sales contract.
Efforts to boost housing supply through new construction also failed, as the industry experienced severe shortages. Steven Hensley, senior manager of Zonda, a housing market analysis platform, points out that the tense supply chain created material restrictions that caused a great shock to potential buyers of new homes. The number of homes under construction, or new homes where construction has begun, fell 9.6% to about 1.4 million last month, despite the average economic projections projecting more than 1.5 million homes, the Census Bureau reported Tuesday. If people continue to move to your area and new housing construction slows down, demand is likely to increase.
So, are we headed for a housing crisis? Housing economists agree that there is no painful crisis on the horizon. The pandemic briefly halted most of the new construction activity, but construction recovered quickly as the market warmed. According to Zelman, as those factors fade away and there is an unprecedented accumulation of new homes on the market over the next two years, demand may not be able to keep up. In turn, these builders would retire, which could result in layoffs of construction workers and a series of resulting negative economic effects.
One positive aspect is that permits for multifamily units increased by 2.8% last month, which helped to compensate for the sharp 4.3% drop in the single-family sector, and Kushi believes that lower wood prices and still high rents may encourage builders to build more multifamily units, which are often rented. The tight housing market means that new construction is even more important for buyers looking for a home.
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