According to a recent poll from Gallup, real estate has been voted the best long-term investment for twelve straight years.
That’s because a home is so much more just than a roof over your head. It’s also an asset that typically grows in value over time.
If you’ve been debating if it makes more sense to rent or buy, connect with a real estate agent to talk about why homeownership can be a better bet in the long run.
You may have heard that there are more brand-new homes available right now than the norm. Today, about one in three homes on the market are newly built. And if you’re wondering what that means for the housing market and for your own move, here’s what you need to know.
Why This Isn’t Like 2008
People remember what happened to the housing market back in 2008. And one of the factors that contributed to that crash was that there were too many homes for sale. While only part of the oversupply back then came from builders, the lasting impact is that some people still feel uneasy when they hear new home construction has ramped up.
Even though the supply of new homes has grown this year, the data shows there’s no need to worry. Builders aren’t overbuilding, they’re just catching up.
The graph below uses data from the Census to show the number of new houses built over the last 52 years. Following the crash in 2008, there was a long period of underbuilding (shown in red). And it wasn’t until recently that we finally met the long-term average for how many homes are built in a typical year.
This shows, that even with the increase in new builds we’ve seen lately, there won’t suddenly be an oversupply of homes for sale. There’s too much of a gap to make up after over a decade of underbuilding. And if you’re still worried builders are overdoing it, here’s something else that should be reassuring.
New Home Construction May Be at Its Peak for the Year
The latest data from the Census on housing starts (homes where builders just broke ground) and permits (homes where builders can start development soon) shows builders are slowing down their pace right now. Why is that?
They’re responding to still high mortgage rates and how those are impacting buyer demand. Basically, they’re pulling back appropriately in response to what’s happening in the market. As an article from HousingWireexplains:
“Even with a massive housing shortage across the nation, homebuilders are completing their pipelines and not seeking as many permits to construct new single-family houses.”
Builders remember what happened when they overbuilt in the crash, and they’re looking to avoid a repeat of that. So, they’re being mindful and pulling back a bit.
You May Have More Options Now Versus Later
If you’re considering a newly built home, here’s how this impacts you. With builders seeking fewer permits and not breaking ground on as many new homes, we may be at the peak of new home construction for the year. This doesn’t mean new home construction is screeching to a stop – just that the pace is slowing down now, and that’ll impact what comes to market later this year. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:
“Given the recent declines in housing starts, home completions will steadily show declines in about six months.”
So, if you’re ready and able to buy now, you may find you’ll have more newly built options to choose from now versus later on. This may be enough reason to kick off your search.
Just be sure to work with a local real estate agent you know and trust throughout the process. An agent will have valuable insight into builder reputations and other key factors specific to your market. And if there isn’t much new construction near you, they’ll be able to point you toward a nearby area where there is.
Bottom Line
While it’s true new home construction is a bigger segment of the market than the norm, that’s not a bad thing. Builders aren’t overbuilding, and they’re responding to market signals to avoid repeating the mistakes that were made in 2008.
If you want to buy now while new home options may be at their peak, reach out to a local real estate agent.
If you’ve seen the news lately about home sellers slashing prices, it’s a great example of how headlines do more to terrify than clarify. Here’s what’s really happening with prices.
The bottom line is home prices are higher than they were a year ago at this time, and they’re expected to keep rising, just at a slower pace.
But a recent article from Redfin notes,
“Price Drops Hit Highest Level in 18 Months As High Rates Dampen Buyer Demand.”
And that might make you think prices are declining.
Now, while it’s true the latest report from Realtor.com also shows 16.6% of homes on the market had price reductions in May, which is up from 12.7% last May, that doesn’t mean overall home prices are falling.
The key is knowing the difference between the asking price and the sold price.
Understanding Asking Price vs. Sold Price
In essence, the asking price, also known as a listing price, is the amount a seller hopes to get for their home when they list it. In reality, sellers can’t just put any price tag on their house and expect it to sell for top dollar. Today’s buyers are savvy customers, and when they aren’t willing to pay a premium for a home because their budgets are strained by higher mortgage rates, sellers need to adjust. And that’s what’s happening right now.
Based on market factors and what offers that seller receives, that asking price can change. If a seller isn’t getting much foot traffic, you may see them revise the price and make an adjustment to reignite interest in the home – and sometimes that’s because they’ve overpriced it from the start. That’s where price reductions come in, and when you see “price drops” in a headline, it sounds like declining home prices.
Mike Simonsen, CEO and Founder of Altos Research, says:
“Not only is the share of homes with price cuts elevated compared to one year ago, but more price cuts are happening each week than last year.”
On the other hand, the final sold price is the amount a buyer actually pays when the transaction is complete.
Here’s the most important thing to note: Actual sold prices are still rising, and they’re expected to continue to do so at least over the next 5 years.
What Does This Mean for Home Prices?
So, while there’s been an increase in price reductions recently, this doesn’t mean overall home values are declining. Instead, it’s a sign that demand is moderating. And, as a result, sellers are adjusting their expectations to align with today’s market reality.
Even with more price reductions, home values are still growing on an annual basis, as they do nearly every year in the housing market. According to the Federal Housing Finance Agency (FHFA), home prices went up 6.6% over the last year (see below):
This map shows how prices rose just about everywhere in the country, indicating the market is not in decline.
So, while seller price reductions are often a leading indicator that prices may moderate in the months ahead, which experts have been saying for a while is expected to happen, they aren’t necessarily reason for alarm. The same article from Redfin also states:
“. . .those metrics suggest sale-price growth could soften in the coming months as persistently high mortgage rates turn off homebuyers. For now, the median-home sale price is up 4.3% year over year to another record high. . .”
And with inventory as tight as it is today, price moderation is much more likely in upcoming months than price declines.
Why This Is Good News for Buyers and Sellers
For buyers, more realistic asking prices mean a better chance of securing a home at a fair price. It also means you can enter the market with more confidence, knowing prices are stabilizing rather than continuing to skyrocket.
For sellers, understanding the need to adjust your asking price can lead to faster sales and fewer price negotiations. Setting a realistic price from the start can attract more serious buyers and lead to smoother transactions.
Bottom Line
While the uptick in price reductions might seem troubling, it’s not a cause for concern. It reflects a market adjusting to new conditions. Home prices are continuing to grow, just at a more moderate pace.
If homeownership is on your goal sheet for your future, you’re probably working on your savings. And a big priority is making sure you’ve got a plan in place for things like your closing costs, down payment, and more.
Here are a few strategies that can help speed up that process.
Budget and Track Your Expenses: To start, create a detailed budget that tracks the money you’ve got coming in and the money going out. This’ll give you a better look at your finances as a whole.
Cut Down on Unnecessary Spending: Now that you have your budget sheet done and you know how you’re spending your money, look for any line items that aren’t absolutely essential. If you cut down on those, you can re-allocate that cash toward buying a home. Even the little things can add up. As the National Association of Realtors (NAR) says:
“The majority of first-time buyers did make financial sacrifices to purchase a home. For those who did, the most common sacrifices buyers reported were cutting spending on luxury goods, entertainment, and clothes.”
Automate Your Savings: Once you know how much you want to set aside for your homebuying budget, look for ways to make it easy. If you have to transfer money manually, you may forget to do it. But getting some automatic transfers set up helps drive consistency and removes the temptation to spend it elsewhere. Realtor.com explains:
“If you’re struggling to put enough money away because of the constant temptations to blow your paycheck, consider automating the process. Ask your employer if you can have your paycheck deposited into multiple accounts—if so, instruct it to send a certain percentage of your salary directly into your savings account. Or go through your bank . . .”
Lean into Any Side Hustles You Have: Do you have a gig you do (or have done before) to net some extra cash? Taking on part-time work, freelance jobs, or picking up a side hustle can help give your savings a boost.
Put any Unexpected Cash To Good Use: If you get any sudden windfalls, like a tax refund, bonus, inheritance, or cash gift from family, put it toward your house fund.
By using these strategies and focusing on your savings over time, you can make sure you’re well on the path to having what you need to buy your first home. As Ramsey Solutions says:
“Budgeting shows your money who’s in charge (that’s you). It gives you the power to tell your money where to go instead of having to wonder where it went. It’s how you make any money goals happen—like saving for a down payment.”
Bottom Line
If you need more strategies for getting ready to buy, connect with a local real estate professional.
