Home building increases in Tampa. Here’s why.
These have been frustrating days for prospective home buyers – in part because there’s certainly a lot of them out there right now.
Every time someone starts up their home search, they come up against roadblocks. Home prices keep rising. The inventory of existing homes for sale has never been lower. For far too many buyers, if they place a bid on a good home, they find themselves in a bidding war. These buyers can’t seem to catch a break.
This year, though, home buyers appear to finally be getting some much-needed relief, courtesy of home builders. If far too few homeowners are choosing to put their properties on the market, what’s needed is more newly built homes for sale.
And in March, that’s exactly what we got.
Homebuilding across the U.S. rose at a faster level than analysists expected, the Commerce Department reported, and now more new homes or either being constructed or landing on the market. That’s exactly what a lot of buyers have been hoping for as the face the continued prospect of a limited number of homeowners putting their houses on the market for resale.
In 2018, home builders could prove to be the salvation for frustrated and disappointed home buyers, giving them options to purchase a brand-new house that needs no repairs.
Why Is Home Construction Suddenly on the Rise?
While much of the home building strength demonstrated in March was concentrated on multifamily construction like apartment buildings, it was clear that builders are responding to the need for more single-family homes as well. Nobody questions the fact that demand for new homes has been red hot after years of under-building.
According to the Commerce Department, housing starts rose 1.9 percent to a seasonally adjusted annual rate of 1.319 million units. That was driven by a solid 16 percent gain in apartment buildings.
If the home building industry has seemed slow in recent years to ramp up construction, a lot of that reluctance dates back to the fall of 2008, when the housing market crashed, and the Great Recession set in. The Home construction industry took a major hit then and struggled painfully with a high home foreclosure rate and far too many unsold new homes.
More recently, as the economy has rebounded, the industry has as well – although in a sign of just how bad of a hit the industry suffered, even today the pace of homebuilding is below the long-run average of 1.5 million new houses and apartments each year.
Still, with the nation’s unemployment rate now at 3.9 percent, quite a few economists now think home builders will become a reliable source for stronger long-term economic growth nationally.
Builders certainly seem well aware that in today’s housing market, demand for homes is outpacing supply. Single-family home construction is up 5.2 percent this year compared with a year ago, while the overall construction of houses and apartments rose 10 percent in March from a year earlier.
In fact, 2018 got off to a great start. New home building in the U.S. reached a one-year high in January, led primarily by the growth of single-family home construction. Building permits at the start of the year hit their highest level since 2007, the Commerce Department reported. Single-family homebuilding increased 3.7 percent in January, with solid growth in the South and Northeast, and building permits rose by 7.4 percent to a new level of 1.396 million units, the highest levels since 2007.
Groundbreaking on new homes rose 9.7 percent to the highest level since October 2016. This year could mark a turning point for the industry.
Are There Still Challenges Facing Home Builders?
Ramping up construction would seem like a smart move. The demand for new homes is clearly there. At the same time, there’s a historically low inventory of existing homes on the market, one of the most severe shortages in decades. That’s helped to push up prices in cities around the country, which serves to increase demand for new homes.
In February, the number of existing homes for sale dropped by 8.1 percent. So more home building is needed.
Still, the construction industry has been facing some challenges in recent years.
The strong economy has cut two ways. On one hand, job growth has encouraged more people to jump into the housing market in search of a new home. With inventory low, buyer demand is soaring.
Builders, though, are often struggling to find workers, since many of them left the industry when the housing market crashed in 2008 and never came back.
In addition, the strong economy has increased land prices, and in some communities, there’s limited availability of land to build on.
One response has been to avoid searching for new, vacant land to build on, and instead follow the direction set by Domain Homes, a home builder in the Tampa Bay area.
Billed as the region’s Urban Neighborhood New Home Builder, Domain Homes purchases older homes in Tampa Bay’s most popular neighborhoods, and replaces them with new, move in ready homes close to top-rated school districts, downtown and its cultural amenities, shopping, and the major highways.
The Domain Homes view is that home buyers shouldn’t have to settle for a “used” home when they’re looking in their dream neighborhood.
Tear down and rebuild has become a popular trend among home builders in cities where land is scarce. And constructing new homes in popular, highly desirable neighborhoods has also proven to be a winning strategy.
Trends like urban infill and tear down and replace are one of the key reasons why economists are forecasting that the construction industry is going to boost growth this year.
How Will This Impact Prices?
Until more newly built homes land on the market, home prices seem certain to keep rising. Real Estate data provider CoreLogic noted that their home-price index showed national yearly price growth of 7 percent in March, up from 6.4 percent in February.
Last year, price gains averaged 5.9 percent, but this year they’re up to 6.5 percent in the first few months of 2018. This is definitely a result of the supply-demand problem, CoreLogic noted, where too many buyers are searching among too few homes, so that even lower-priced homes are experiencing swift price appreciations.
And even CoreLogic didn’t foresee price growth increasing this rapidly. In May 2017, the website forecast prices would grow by 4.9 percent through May 2017 – well below the 7 percent gains the nation actually experienced.
Still, some economists see reasons to be encouraged, noting that housing completions in the first month of the year were up 7.7 percent over January 2017 – a figure that Lawrence Yun, chief economist for the National Association of Realtors, called “terrific news,” while adding, “This rise in single-family housing construction will help tame home price growth.”
And as Domain Homes has demonstrated, there’s clearly a demand for brand new homes in desirable locations, a smart future strategy for builders.
Home Building Increases in Tampa
Nationally, the U.S. housing market had a great performance in 2017, as buyer demand soared to record high levels and prices continued to rise. When sales fell, it was only because there weren’t enough homes on the market to buy, as opposed to a diminishing interest among buyers.
This year looks like a repeat – with one exception. In 2018, there are indications that builders are ready to provide the market with more new homes to meet demand. That’s great news for buyers.
A good example of this trend comes from Domain Homes, the Tampa Bay builder that understands how important location is to their buyers. They purchase older, often run-down homes in need of repair, and replace them with brand new ones in the region’s most desirable neighborhoods.