Tuesday
June 28, 2016

New-Home Niche May Pay Off in 2016

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New-Home Niche May Pay Off in 2016

Here’s why you may want to start reaching out to homebuilders: New-home sales will likely have one of their best years in a decade, notes Lawrence Yun, chief economist of the National Association of REALTORS® in his latest column at Forbes.com.

A “massive housing shortage” is prompting homebuilders to ramp up construction on new homes this year and next, Yun says.

Read more: 2015 Marked 'Very Strong Year' for New Homes

Builders are taking notice of the inventory shortages playing out with existing homes, which were at about a four- to five-month supply in 2015 (way below the six- to seven-month supply that most economists consider normal). That tight supply is leading to higher home prices. Existing-home sales prices rose 6 percent in 2015, and prices were up 8.2 percent in January, according to NAR’s data.

“This sizable price gain is a signal for producers to bring more new supply to the market,” Yun writes at Forbes.com. “One cannot rely on existing home owners to help relieve inventory since nearly all home sellers are selling with the intent to buy.”

By the end of January, about 1.82 million existing homes were on the market and 235,000 new homes were for-sale –a four-month supply way below historical norms, Yun notes.

“What is truly needed therefore to help with inventory is more new home construction,” Yun says. “Even though there still are barriers to a fast ramp-up in production, the underlying backdrop for increased production is developing.”

Yun estimates 570,000 new-home sales in 2016, which would equate to a 15 percent increase over last year. That also would mean the best showing for new-home sales since 2007. Moreover, he predicts a 15 percent to 20 percent jump in new-home sales for 2017, which would bring sales to about 700,000.

Still, even with that growth, new-home sales likely will not return to the 1-million mark until around 2020, Yun predicts.

Source: “New Home Sales Set to Grow Respectably in 2016,” Forbes.com (Feb. 24, 2016)