The dual factors of tight inventory and rising prices have favoured the new-build market, to the extent that analysts believe 2024 could be the year for homebuilders in the US. New home sales rose last year, and the sector promises “healthy fundamentals” for 2024.
New-build sales up compared to all sales
Transactions involving new properties increased by 4.2% in 2023, according to the latest figures from the Commerce Department. This rise was the first since 2021 and marks a shift in the new-build market.
Furthermore, the rise in new-build sales contrasts starkly with the plummet of 19% in the resale market. Last year, resale transactions fell to their lowest level in almost three decades.
Homebuilders in the US tapped into the tandem of tight inventory and rising prices in the resale market by offering buyers incentives to purchase a new home. These benefits included lower prices and mortgage rates.
Promise for homebuilders in the US
The uptick in sales augurs a good year for the new-home sector in 2024. A recent Moody’s Investors Service report claims that “healthy fundamentals should result in a solid year for US homebuilders”.
The company predicts a 5% rise in new-home sales this year on the back of sustained demand and booming employment. It cites millennials as a demographic with some of the biggest demand.
Emerging Trends in the Real Estate confirmed this forecast. The 2024 report from PWC and LLC cited the single-family rental housing market as one with “significant promise”. Furthermore, it predicted higher investment levels in the sector as investors “capitalise on the growing demand”.
Dependence on mortgage rates
The trend in interest rates will condition sales and prices in the new-build sector, much as it will within the property market generally. Mortgage rates should ease this year, although analysts forecast they will not drop below 6%.
Moody’s predicts a rate of 6.4% for 30-year fixed mortgages towards the end of the year, with other analysts citing a range of 6 to 6.5% margin. The anticipated rate is considerably lower than the 7.79% registered in late October, the highest for 23 years. However, the Fed is not currently showing signs of bringing rates down.
Good prospects for homebuilders
Despite higher interest rates, the new-home sector can still draw on incentives to offer buyers, as was the case in 2023. New builds will also benefit from tight supply in the resale market, where inventory levels remain well below a healthy balance.
The US Stock Exchange appears to reflect this optimism for new housing. Shares in most homebuilders in the US rose considerably during 2023, with the S&P 500 index increasing by almost 25%. For its part, the SPDR S&P Homebuilders ETF soared by around 48% last year.
(Source: ABC News)
