When it comes to answering the question “will home prices continue to climb”, it’s difficult to provide accurate feedback or anything beyond a guess. But while difficult, the market offers clues in each month’s economic reports. One area we watch to get a glimpse into our crystal ball to see what the future holds is new home construction data and builder sentiment. These monthly reports give us an idea of where new home builders are, where they’re headed, and what they’re thinking. Because new homes coming to market impact the most important equation when it comes to home values: supply & demand.

New Home Construction

July-August have brought us a mix bag of builder data. July stats show year-over-year (YoY) weakness with some monthly gains in ‘homes under construction’ and ‘new homes completed’. Seasonally, new home completions tend to spike in the Spring/Summer months since many new home projects break ground with the seasonal change in March/April. Permits, which are the very beginning of a new home coming to market, were down month-over-month (MoM) and YoY, which could signify fewer homes coming to market in 5-9 months.

New Home Sales

The July 25′ new home sales report showed a pretty large supply figure, with 499,000 new homes being report, which signifies a 9.2 month market supply. Signed contracts for new homes was down MoM and YoY, with the slowdown largely being attributed to economic uncertainty and continuing affordability challenges as home buyers struggle to commit to buying in a market of high home prices and stubbornly high interest rates. With the weakness though, median home prices are maintaining $400k+ levels.

Part of the strength of home values (continuing to climb despite market headwinds) has come from the lack of supply in the marketplace. When it comes to new homes, of the 499,000 homes reported to be for sale, it’s important to note only 121,000 have actually been completed. So 378,000 homes are unavailable because they’re still in some portion of the home building process. So while 499,000 is a lot of homes, there are only 121,000 homes to satisfy immediate demand.

Builders Remain Pessimistic

Builder sentiment for August 25′ (gauged by the National Association of Home Builders) was pessimistic, as it has been all year. Current sales expectations took a tip, and buyer traffic is at low levels as well. This news comes as many builder incentives are failing to entice buyers to purchase new builds.

What do things like new home permits, home builder sentiment, and inventory have to do with you? Well, as a homeowner, it’s a good idea to know which direction your home’s value may be headed – while there is some pricing pressure in certain markets, a lack of confidence from builders and a slowdown in new home construction could be an indicator that home values should remain stable-to-climbing (less new construction = less future inventory). As a home buyer or potential home buyer, it’s important to note that this data is national and not accurate for every market – we have some markets seeing a lot of new construction, and others where it’s sparse. Our recommendation is to start your home buying journey with a preapproval and once preapproved, work with a local real estate agent that understands your marketplace and can help you craft an offer based on current market conditions. Those potential buyers “waiting for the dip” in terms of home prices could be in for disappointment, because as inventory has increased some, recently dropping rates could bring more demand to the market, and more demand on tight supply typically equals higher prices.

If you have any questions on anything involving a mortgage, preapproval, home search, or anything else we may be able to help with, we’d love to hear from you! We offer free consultations, free preapprovals, and have a great network of real estate professionals around the country if you don’t already have a great agent helping you in your home search. Give us a call today, or connect with us here.