New Home Construction Update November 2021

New Home Construction Update November 2021New home construction is an important segment of the overall housing market.

If we produce too many homes, it creates an oversupply that causes downward pressure on home values. If we produce too few new homes, the opposite is true, and values move higher at too fast a rate.

The latter is the situation we've observed since 2016, and it has motivated us to produce regular (checkups) on how the new homes market is faring. Today's report includes graphs that show how many homes have been built and sold, as well as how well the market has received them.

First, let's start by looking at the new construction homes for sale in Tallahassee.

New Construction Homes For Sale

225 Properties
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Delta Between New And Used Is Closing

I like to track the average value of both new and existing homes that have sold in order to see how far apart they are. In this graph, we've plotted the average new home value (in price per square foot) in red, and existing home values are plotted in blue. The difference (the Delta) is plotted in gray (highlighted in yellow) and is reported on the right vertical axis.

Graph shows new construction costs versus existing home values November 2021

The important trend in this graph is found by following the delta between the two, and it has fallen to 22%, the lowest we've seen in more than twelve years! Simply put, relative to used homes, new homes are more affordable than we've seen since 2008!

If you want to get a glimpse of what helped fuel the growth the caused the housing bubble 15 years ago, just look at the delta for the first seven years in the graph. New homes and existing homes were (on average) only 10% apart, so it was very easy for builders to produce homes that the market would bear. Unfortunately, new home construction continued far longer than the demand would bear, adding too many homes to the inventory.

Today, we have a supply imbalance that is completely opposite of the pre-housing bubble years. We still have a need for more new homes and I'm concerned the slow pace of construction will push values so high that many buyers will soon be priced out of the market.

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New Versus Used Home Sales

This next graph plots the number of homes sold each year, segmented by new versus existing homes. Note that all previous years are through December, while 2021 is through October.

home sales graph segmented by new construction homes versus existing homes

If you have any concerns about a housing bubble forming, the graph above should provide you with some relief. The number of new homes being built and sold is still below the levels we saw in the 1990s. 

Unfortunately, we are seeing a big problem forming in housing. No, not a bubble that is going to see values tumble, instead, we're seeing affordability dwindle. This could easily trap many homeowners into their present homes.

While homeowners will be accumulating a lot of equity, they will have a hard time converting it to another home as both the cost of real estate and the cost of borrowing money will be moving at historically high rates.

How Appreciation Rates Differ Between New And Used Homes

This graph plots the change in the average price per square foot of new and used homes. New homes values are plotted in red, while used home values are plotted in blue.

Graph of new construction costs versus existing home values over time November 2021

Since 2013, existing homes have been growing in value. In 2016, the market hit equilibrium (the level where supply and demand are balanced), and since that time the pace of appreciation has moved to higher levels.

Prior to the year starting, I forecast double-digit appreciation and was concerned we might see it hit 20%. That fear has not been realized, but appreciation through ten months is at 11.9% so we're still looking at "out of control" growth in home values.

We have been seeing mortgage interest rates finally starting to push higher and they are currently just below 3.25% (last year they were right around 3%). It's likely the future includes additional mortgage interest rate hikes that will slow demand and help balance the relationship between buyers and sellers.

How Fragile Is Our Housing Market?

US Homeownership Rate Crash
Homeownership has been high since World War II, but there is a generational shift in the US housing market that is occurring with two key trends that will soon destroy home affordability and then homeownership in the US.
Foreclosure Wave? The End Of The Mortgage Moratorium And Forbearance
Many claim a foreclosure tsunami will be the cause of a new housing bubble, yet I believe they are a little short-sighted and I have some evidence that shows this is just not going to happen.
How Often Do Home Prices Fall?
Are home prices falling? Will house prices fall soon? Home prices are soaring, buyers are having to pay above most sellers' asking prices, and the housing market feels just like a feeding frenzy during Shark Week on the Discovery Channel.
Signs Of A Housing Market Collapse?
When we study the US median market rent, we see signs that paint a clear picture of the future of home prices and home values.
Home Affordability Forecast
Real estate prices are moving higher (faster). This is a real estate forecast you need to see. Many have been misinformed about home prices and the housing market and must watch and internalize the message from this video.
Housing Shortage Confirmed: Median Market Rent Explosion
The lack of home builder production has home prices and home values soaring, now look at what's happening to rents too!
What Do Low Mortgage Interest Rates Really Mean?
Every article or video about mortgage interest rates conveys that rates are low, but do you really know what it means?
Home Affordability Forecast and Housing Report 2021 Q1
A look at how home affordability is likely to change over the next twenty years. I produced the forecast by using data from the past and applying it forward, including inflation, home prices, home values, and mortgage interest rates. If you have a stake in the housing market, you don't want to miss this forecast
Here's Where Home Affordability Is Heading
There is a generational shift occurring in the housing market that I reveal in this video. I’m talking about how buying a home over the next twenty years will be unlike what previous generations saw since the early 1980s.
The Truth About The Housing Bubble Of 2021
Will there be a housing bubble in 2021? - If you look at the most active real estate videos on YouTube, you'll find that the forecast for the next real estate bubble is very popular. Is there a housing crisis and will there be a housing crash in 2021? Or is it just sensationalism that drives people to watch these so-called reports? This video exposes real evidence and I will give you data that tells you everything you need to know about a housing bubble in 2021.
Real Estate Crash In 2021?
Are you worried about a real estate crash in 2021? For this to happen, we’ll first start to see a rise in the supply of homes for sale, so today’s housing market 2020 report is focused on the supply side of housing market conditions. In normal years, October is about the slowest month for new contracts being written and new listings entering the market. But this is 2020. This is not normal. You should know that I do provide a fair warning, for all home sellers, near the end of this video.

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