In a context of extremely tight supply, the US new-home market potentially offers the solution to the lack of inventory. However, although sales of new properties rose in May, yearly figures are lower than 2021.
Meanwhile, new-home starts fell significantly compared to last year as new construction fails to keep up with demand. As a result, the current scenario continues to present exceptional opportunities for build-to-rent investment, particularly in the most popular relocation spots in the US such as Florida.
US new-home sales rise in May
According to statistics from the Commerce Department, sales of new homes went up by 10.7% in May compared to April. Transactions were particularly strong in the South and West where they went up by 12.8% and 39.3%, respectively. Median prices for the US new-home market stood at US$449,000, just slightly below their record of US$454,700.
However, in year-on-year terms, sales decreased by 5.9% in the 12 months to May. Nevertheless, supply continued to plummet, falling by 7.2%. The latest drop brings inventory levels to the equivalent of 7.7 months' supply.
Housing starts fall
Despite a surge in sales in May, the US new-home market continues to supply from lack of housing starts. Construction on new properties dropped by 14.4% in May, compared to April, bringing the total housing starts to an annual rate of 1.55 million.
The May drop is the highest since April last year and housing starts now stand at their lowest level since April 2020. New-build construction was particularly slow in the South where it fell by 20.7%. This trend is forecast to continue for the rest of the year.
“We expect housing starts to lose some momentum as 2022 progresses,” said Nancy Vanden Houten, from Oxford Economics. However, she points out that “a shortage of supply and record backlog of starts will keep activity from plummeting”.
New-home permits lower
Building licences make up the first link in the chain of the US new-home market and here too, figures were down in May. 1.7 million permits were issued throughout the US in May, down 7% on April’s figure.
However, in some parts of the country, they rose. Southwest Florida is an example and Charlotte County recorded a 33% increase in new permits in April compared to March. This coastal county, home to popular relocation spots such as Englewood, registered an even higher surge in yearly terms when building permits skyrocketed by 199.3% in 12 months.
According to the latest Southwest Florida Regional Economic Indicators, Charlotte County was the only coastal county in the region to show a positive 13-month trend in April.
Build-to-rent investment opportunities
This current scenario of low supply continues to present excellent potential for build-to-rent investment, particularly in areas popular for retirement and relocation. Florida is one such region and regularly features as the nation’s number one spot for interstate migration.
Within the Sunshine State, Southwest Florida is a perennial favourite. A recent report from Redfin revealed that Tampa is the second most sought-after destination for relocation in the US. This metro area appeals mostly because of its affordable real estate. Nearby Cape Coral ranked as the sixth most popular.
(Source: Commerce Department, Florida Gulf Coast University)