Amid the severe shortage of existing homes for sale across the U.S., newly built homes made up nearly one-third—approximately 31.4%—of single-family homes on the market nationwide in Q2, representing the highest share of any second quarter on record. According to a new report from Redfin [1], new construction is now keeping the housing market afloat.
The portion of new homes of all inventory is up from 30.3% a year earlier and nearly double the pre-pandemic share of about 17% in Q2 of 2019. The second quarter’s share is down from a near-record-high of 33.6% the previous quarter, but that’s a normal seasonal pattern, as the share of new homes tends to peak in the winter months.
New homes make up a near-record share of housing inventory for a few reasons:
- The pandemic-fueled homebuilding boom. Builders rushed to capitalize on the pandemic homebuying frenzy in 2021 and early 2022, driven by record-low mortgage rates and remote work.
- Lack of existing homes on the market. Builders aren’t constructing as many new single-family homes as they were at the height of the pandemic–but so few homeowners are putting their homes on the market that new homes still make up a huge share of available inventory. Total inventory dropped 15% year over year to an all-time low in June.
- Leftover inventory. Because elevated mortgage rates have slowed homebuying demand, builders haven’t yet offloaded all the new homes they completed over the last few years. Although buyers have made a dent in the glut of new-construction homes on the market over the last several months, there are still plenty of new homes on the market. The number of newly built single-family homes for sale was up 4.5% year over year in June, compared with an 18% drop for existing homes.
Homebuilders are benefiting from the scarcity of existing homes on the market
With inventory at a record low, many homebuyers are turning to new construction. But because overall demand is still relatively low, with high rates continuing to sideline many would-be homebuyers, some builders are lowering prices and offering perks to offload excess inventory.
For many homebuyers, new construction is a welcome option in today’s market, especially in the southern part of the country, where new homes tend to be more prevalent. That’s partly because new homes are often easier to find and partly because builders are more likely than individual homeowners to offer concessions; builders typically don’t have the option of pulling a home off the market if they’re unable to get the price they want.
“Builders are still building but homeowners aren’t selling, so new construction is the only option for many buyers,” said Shauna Pendleton, a Redfin Premier agent in Boise, ID, where new homes made up nearly 40% of single-family inventory in the second quarter. “A lot of buyers want to secure a home now because they’re worried prices are going to go back up, and new construction is more plentiful with perks that are hard to pass up. One builder is doing a promotion where buyers get anywhere from $15,000 to $25,000 worth of concessions. It was supposed to end in June, but they extended it through July, and now they’re extending it through August. That money can cover all of a buyer’s appliances with money left over for a mortgage-rate buydown.”
Metro-level highlights: Q2 2023
- Metros where new construction is most prevalent: Newly built homes made up more than half (52%) of single-family homes for sale in El Paso, TX, the biggest share of the metros in this analysis. It’s followed by Omaha, NE (46%), Raleigh, NC (42.1%), Oklahoma City (39%) and Boise (38%). New construction is typically prevalent in parts of the country with sprawling land and loose building codes.
- Metros where new construction is least prevalent: Newly built homes made up just 2.8% of single-family homes for sale in Honolulu, the smallest share of the metros in this analysis. Next come San Diego (3.3%), Pittsburgh, PA (3.3%), Oxnard, CA (3.7%), and Detroit (3.8%). New construction tends to be relatively uncommon in California because of limited land and strict regulations.
- Metros with the biggest upticks in newly built homes: New homes made up 33% of single-family inventory in Tulsa, OK, up from 20% a year earlier. That’s the biggest jump of the metros in this analysis. It’s followed by Richmond, VA (35%, up from 23%), Albany, NY (24%, up from 13%), Phoenix (26%, up from 15%), and Elgin, IL (25%, up from 15%).
- Metros with the biggest declines in newly built homes: Boise saw the biggest year-over-year decline by far, with new homes making up 38.3% of inventory, down from 49% a year earlier. It’s followed by Austin, TX (30.4%, down from 34.5%), Honolulu (2.8%, down from 6.4%), Allentown, PA (14.9%, down from 18.5%), and Houston (35.3%, down from 38.5%).
To read the full report, including more data, charts, and methodology, click here [1].