Builders are having a moment. New home sales are glowing right now in the midst of depressed volume in the resale market. It’s like there are two different markets happening at the same time. Today I want to share some stats for new construction, but let’s also talk about pivoting.
UPCOMING (PUBLIC) SPEAKING GIGS:
5/22/23 Yolo YPN event (only for YAR members)
6/1/23 DJ Lenth Event TBA
6/07/23 SAFE Credit Union event for agents (sold out)
6/08/23 Made 4 More event TBA
7/20/23 SAR Market Update (in-person & livestream)
NEW HOMES REBOUND
The past three months have shown a rebound of new home sales in the Sacramento region, and this dynamic is starting to show up in many markets across the country. Anyway, after a sharp downward change in volume for the second half of 2022, this year is starting out strong. It was the second-highest March since 2005 and second-highest April since 2006. These stats ONLY show brand new homes (data from North State BIA).
And here’s a chart to show builder confidence from NAHB. The increase we’ve seen lately shows the market has been improving. Let’s keep watching.
THE REST OF THE MARKET ISN’T GLOWING
Now let’s look at the resale market (older existing homes). The trend is completely different as we’ve basically seen the lowest volume ever. This is a great reminder that the market isn’t the same in every segment. Or a fancier way of saying it is we have a bifurcated market.
Granted, the new home market is so much smaller, but still, it’s a stark contrast to compare new vs existing homes. In recent years we’ve had anywhere from 4,200 to 5,300 annual new home sales in the wider region, but in 2020 and 2021 there were 7,000+ sales. In contrast, the resale market locally tends to have somewhere around 28,000 or so sales in a normal year (not including condos).
BUYERS PUMPED THE BRAKES LAST YEAR
Buyers backed off the new home market last year when mortgage rates changed (see yellow line). For many months in a row contract volume was basically cut in half from the previous year. To be fair, the previous year was a freakishly strong year, but still, the contrast was really sharp.
Why are builders rebounding? The x-factor is offering concessions to buyers. Credits for closing costs (or upgrades) and rate buydowns have been a tractor beam for buyers. Also, sellers are NOT coming to the market lately as we’ve seen about 40% fewer new listings in 2023. This helps shift the focus for buyers on where homes are popping up – new construction.
By the way, would these properties padded with concessions be selling for that amount without the concessions? This is where appraisers are going to have to carefully analyze the market. The truth is concessions can inflate prices, which is something to watch.
THIS ISN’T THE BEST VOLUME EVER
Is new home volume today outpacing what we saw in 2005? Nope. New home construction was expanding rapidly during that time, and we’re not seeing volume on those levels today. And for the record, new home volume is sorely needed right now in light of sellers sitting, but we have a labor shortage, so builders can’t build fast enough to make up for sellers not listing.
IT’S TIME TO PIVOT
Builders are pivoting at the moment. They’ve basically changed their strategy to stay alive. I realize not everyone can do what builders are doing with offering rate buydowns and credits, but shifting strategy is still key in the resale market. If you are a real estate professional, what do you need to do to pivot in the midst of depressed resale volume? What can you do differently today? What segments of the market do you need to start focusing on? How can you increase the size of your network right now? Who do you need to start getting in front of? What relationships do you need to build? What knowledge do you need to gain? Who are the gatekeepers to getting more business? If you’ve only been focused on attracting one type of business, what other avenues can you focus on? (vacant land, 2-4 units, investors, probate, divorce, second homes, first-time buyers, acreage, leaving California, moving up, moving down, retiring from the state, financial hardship, etc…).
IS OPENDOOR PIVOTING?
Right now Opendoor owns 63 units in the Sacramento region. Before the market shifted last year, Opendoor had about 300 to 330 units, so there has been a significant change. Some think Opendoor is heading toward failure, but for now they are still acquiring properties (7 since April). If anything, it looks like they’re pivoting to survive. Will they be successful? Only time will tell.
I hope this was helpful.
Questions: What are you seeing builders offer consumers? What are you seeing them do with their prices?