New housing starts recently reached their highest amount since April 2022, suggesting a more stable housing market that provides increasing opportunities for prospective homebuyers. Housing starts drastically spiked by 21.7% month-over-month from 1.34 million to 1.631 million, according to housing starts data from the U.S. Census. Single-family housing starts reached 997,000, increasing 18.5% from April.
In the fall of 2022, housing started dipping and remained low throughout the new year due to high-interest rates and asking prices. Seasonality also contributes to lower numbers in the winter season. With a growing number of new construction starts, developers showcase their confidence in the market.
New Housing Sales Increase
New housing sales also increased month-over-month and year-over-year, potentially incentivizing developers to take advantage of a hotter market. 683,000 new homes sold in April 2023, up 11.8% from the previous month and 15.1% from 2022. Homebuyers will even pay higher sales prices for premiums like new appliances and customize their property. With more new homes coming to the market, developers can recoup their building costs and profit from a higher sales price.
While high-interest rates and sales prices continue to price some buyers out of the market, many continue purchasing homes nationwide. With more new construction starts, available inventory will provide further options for prospective homebuyers.
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New Construction and Homebuyer Sentiment
Homebuyer sentiment remains low despite increasing new housing starts and new home sales. Only 19% of homebuyers believe now is a valuable time to purchase a home. However, 65% of participants believe it is a good time to sell a home. Sentiments decreased on both fronts year-over-year.
Developers avoid the less favorable end of the bargain by not buying property and instead generating revenue by selling new homes. Confident developers can observe the growing number of new housing sales and cater to ongoing demand. Although housing starts jumped, most markets nationwide continue to deal with a housing shortage that provides only a few opportunities for prospective buyers. It will take years of aggressive new construction until supply and demand reach equilibrium, meaning developers can still substantially profit from adding homes to the market.
Sentiment Does Not Always Equal Demand
Even though sentiment remains low, many prospective buyers continue acquiring mortgages and purchasing properties. Buyers know that they can refinance their mortgage down the line for a lower interest rate. Most buyers also realize that asking prices and interest rates will not drastically change in the near future. Therefore, if they can afford to purchase a property in the current market, they can act now to start building equity. Additionally, some buyers with growing families, job switches, or a desire to live in an area without a strong rental market may have no choice but to purchase property to acquire housing.
First-time homebuyers continue to enter the market to evade increasingly high rent prices and start building equity. First-time homebuyers make up 28% of May 2023 home sales, up 1% from last year. While sizeable down payments create a high barrier to homeownership, there are still a substantial number of those entering the housing market for the first time.
