New Home Prices Are Holding Back Home Sales

 


Co-Authored by Matt Farris, Senior Associate

Rising new home prices across the nation have eroded new home sales under $200K and contributed to lackluster new home sales volumes.

As shown below, new homes priced under $200K comprised nearly half of the market (44%) in 2010, compared to only 16% of the market today. During the same period, the share of new homes priced from $200K to $400K has grown from 43% to 55%, and the share of new homes priced above $400K has risen from 13% of the market to 29%.

Partially due to very high new home pricing, both in absolute numbers and in relation to comparably sized resale homes, new home sales volumes remain well below previous peaks in the mid-1980s, late 1990s, and mid-2000s.

Nationally, there is strong unmet demand for new, entry-level, affordable homes. I recently experienced this in Houston, where Matt Farris, Dustin Moudy, and I live and consult for our team. Despite new home prices rising a whopping 40% between 2011 and 2015 and oil prices subsequently plummeting, home builders who focus on sub-$300K new homes (such as LGI Homes, K. Hovnanian Homes, Centex Homes [by Pulte], and Long Lake LTD.) continued to sell well and gained significant market share. Throughout the period of falling oil prices, demand for new homes priced under $300K has remained strong.

More than half (55%) of non-home owning adults cite affordability as the main reason they do not currently own a home, compared to only 22% who cite the need for flexibility as the main reason they do not own. Even with historically low mortgage rates, affordability has become a huge problem.

 


David Jarvis If you have any questions, please contact David Jarvis at (713) 906-3829 or by email.
Matt Farris If you have any questions, please contact Matt Farris at (936) 662-1767 or by email.