Low interest rates and the trend for suburbia living has pushed up the demand in the single-family home market in the US. Builder confidence sits at a record high and sales of new homes have soared. However, supply is very short meaning building lots in sought-after locations are at a premium.
Builder confidence sky high
The National Association of Home Builders (NAHB) Index for builder confidence in October reached 85. This marks a new record and is even higher than September’s previous all-time high of 83. Any figure over 50 signals optimism in the homebuilding sector in the US.
The mood of builders in the single-family home market is so upbeat that Florida Realtors asked “if they could be any more confident”. NABH noted that this is the first time that the Index has topped 80 for two consecutive months.
Starts, sales and prices rise
The Index comes on the back of excellent sales figures in September. Statistics from the US Department of Housing show that single-family starts rose by 8.5% in the year to September, the highest since 2007.
Further signs of high activity in the single-family home market in the US came in sales figures. In September, they went up 32.1% year-on-year and the increase for the year (January to September) reached 16.9%. The sales of off-plan single-family homes (those with construction yet to start) skyrocketed by 47%.
Median prices for new single-family homes increased in tandem with the rise in demand. In September, the median price stood at US$326,800, up 3.5% in the year.
Driving the single-family home market
Two factors are the principal drivers behind the surge in demand of new single-family homes. The first lies in rock bottom interest rates, currently at their lowest ever. Many buyers are taking advantage of the favourable mortgage conditions.
Covid-19 also plays a part in the increase in the single-family home market. Since the pandemic arrived, there has been a growing trend in the US to move out of city centres and into suburbia. Areas with easy access to nature and/or the coast are in particularly high demand.
“Traffic remains high and record-low interest rates are keeping demand strong as the concept of ‘home’ has taken on renewed importance for work, study and other purposes in the COVID era,” NAHB Chairman Chuck Fowke.
Strong demand has pushed supply down and September saw the third consecutive month of inventory levels below 4 months. Specifically, supply stood at 3.6 months with just 284,000 single-family homes on the market.
The market also faces other challenges that include the lack of building land. “It’s becoming increasingly challenging as shortages of lots, labour and key building materials are lengthening construction times,” said Fowke.
Future for single-family home market
Despite the challenges, the homebuilding sector in the US appears to have a rosy future. “Strong demand, low inventory and a record level of homebuilder confidence continue to support new home construction,” said Nancy Vanden Houten, researcher at Oxford Economics.
Permits for new single-family homes are also on the rise. In September, they went up by 7.8%. Other areas saw an even higher increase. In Southwest Florida, for example, single-family building permits rose by 20% in the year to August and by 10% compared to July this year. In Charlotte County, the increase was 25.7%.
Invest for the market
With single-family home starts and sales rising and builder confidence at a record high, now is an excellent time to look into build-to-sell or build-to-let investment. BRIC Group has a selection of prime plots in a highly sought-after area of Southwest Florida offering exceptional potential for your portfolio. Investment starts at just US$26,500 and build upgrades are available. Find out more about buying land in Florida.
(Source: NAHB, Southwest Florida Regional Economic Indicators)