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According to a new report from Redfin, more than 34.1% of single-family homes for sale throughout the U.S. in December were new construction, up from 25.4% a year earlier and the highest share on record.
Newly built homes have started to take up an increasing portion of U.S. housing inventory over the last 10 years, with a significant increase in mid-2020 after the pandemic started. Homebuilders have been busy trying to make up for the lack of existing homes on the market and keep up with high demand. With the surge in homebuyer demand since the start of the pandemic, stemming from low mortgage rates and the prevalence of remote work—some homeowners have opted to refinance or remodel instead of selling, heightening the shortage of existing homes for sale.
Overall inventory dropped to a record low in December, as inventory of existing homes fell 14.2% year over year, and there was a record-low 1.8 months worth supply. For new homes, there was six months of supply and inventory was up 34.8%. As the share of homes for sale of newly built homes has risen, the share of home sales that are new builds has remained relatively consistent, around 11%. This is another indicator that homebuyer demand is far outpacing supply.
“A lot of pre-owned homes are being listed, but they are just selling off so quickly—typically in a matter of days—while new homes take longer to sell,” said Redfin Economist Sheharyar Bokhari. “So as a homebuyer, you’re increasingly likely to see new builds when you look up homes for sale in your target area. Existing homes tend to be less expensive and fly off the shelves faster, so people who are just getting into the market should speak to their lender and agent about preparing to act quickly when an existing home that meets their criteria does hit the market this winter,” said Bokhari.
In Houston, 39.5% of for-sale homes were newly built in the Q4, the largest share of the 50 metros in this analysis. It’s followed by Minneapolis at 38.3% and San Antonio at 37.5%. Texas metros top this list because they typically have more land to build new homes on and relatively lenient construction regulations.
On the other end of the spectrum, three California metros had the smallest shares of new-construction inventory. In San Diego, 3.1% of for-sale homes were newly built, followed by Anaheim at 3.8%, and Los Angeles at 4.4%. California has a lack of vacant land and less space zoned for housing development.
Building permits are up, another signal that supply of new homes will continue to rise. The number was up 6.5% year over year in December, and up 9.1% from the month before.
The upward trend in building permits at the end of last year is a sign that supply and sales of newly built homes will continue to rise in 2022. Builders are betting demand from buyers will continue in the coming year as permanent remote work policies allow more people to move. More new homes in the pipeline should help boost the overall supply of for-sale homes.
