All signs point to an uptick in new home inventory in 2020.
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The new year is shaping up to be a good one for homebuyers—at least those interested in buying new homes. Not only are homebuilders more confident in the market than have been in 20-plus years, but recent construction numbers are surpassing expectations.
In fact, according to the U.S. Census Bureau, residential building permits hit a 12-year high last month, surging 11.1% over the year. Housing starts were also up, jumping 13.6% over last November, while housing completions rose 7.3%. It’s the sixth consecutive month housing starts have grown.
The developments, along with strong economic growth, spurred Fannie Mae to revise its housing forecast for 2020. The company now predicts housing starts to jump 10% across 2020, with 1 million new homes hitting the market by 2021.
As Doug Duncan, chief economist and senior vice president at Fannie Mae explains, “We now expect single-family housing starts and sales of new homes to increase substantially, aided by a large uptick in new construction as builders work to replenish inventories drawn down by the recent surge in new home sales activity.”
In total, Fannie Mae predicts new home sales to grow 5% in 2020, with much of the growth on the tail-end of the year, and 5.5% in 2021. Existing home sales will also increase, its experts say, but at a slower pace (1.5% in 2020 and 0.2% in 2021).
According to the latest Housing Market Index from the National Association of Home Builders, the country’s leading builders are feeling equally as optimistic. The index, which measures builder sentiment around single-family home sales, sales expectations and buyer traffic for the next six months, saw increases across the board, notching its highest reading since mid-1999.
Robert Dietz, NAHB’s chief economist, says a number of factors are contributing to this industrywide bump in confidence.
“Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market,” Dietz said.
If Fannie’s predictions come true, it’d mean some relief for the inventory-strapped housing market, but it wouldn’t alleviate supply-and-demand issues entirely—at least not for a while. As a result, buyers should still expect home prices to rise in 2020, especially on the lower end of the price spectrum.
“Despite the expected increase in the pace of construction, the supply of homes for sale remains tight and strong demand for housing is continuing to drive home prices higher, particularly in the more entry-level price tiers,” Duncan said.
Fortunately, many builders are shifting their attention to more affordable price tiers. On an investor call in October, Lennar CEO Rick Beckwitt said he expects his company—the largest home builder in the country—to increase deliveries in the entry-level market come 2020. Its footprint of first-time homebuyer communities should increase as well.
“We’ve really targeted—across the board—a lower price point,” Beckwitt said on the call. “You can see it in our sales orders in every geographic segment of the company. And it’s primarily being led by Texas and some of the Florida markets.”
Currently, about 40% of Lennar’s business is considered entry-level in price.