Recent Census data, combined with NAHB survey results, illustrate the way in which home buyers in the lower one-fourth of the market have been squeezed entirely out of the market for new construction, and forced to look exclusively in the stock of existing homes—where the inventory of homes available for sale remains in a historically low range (at a 2.5-month supply).
According to the 2021 edition of NAHB’s What Home Buyers Really Want (based on a representative sample of 3,247 recent and prospective home buyers conducted in the summer of 2020), the median price buyers expect to pay for a home is about $265,000. Half are looking to pay $250,000 to $1 million, and one-fourth are looking to pay less than $150,000.
In contrast, NAHB tabulation of recently released data from the HUD/Census Bureau Survey of Construction shows that the median price of single-family homes started in 2020 and built for sale was $336,000. The vast majority (79 percent) were priced between $250,000 and $1 million. Virtually none were under $150,000 (only 1% between $100,000 and $150,000 and zero under $100,000).
In other words, in 2020 new construction was providing essentially no product for the bottom one-fourth of the home buying market. Moreover, in 2021 the situation is likely to be worse, given that the median price of a new home in May 2021 was up 18 percent from a year earlier, at $374,400. In addition to the 25 percent of buyers looking to pay under $150,000, it is likely that builders in many parts of the country are now unable to accommodate a substantial share of the 22 percent looking to pay somewhere between $150,000 and $250,000.
The reasons are not mysterious. As described in previous posts, the change in lumber costs between April 2020 and April 2021 added more than $35,000 to the price of an average new home. In May, builders reported that material costs in general had increased 26 percent from a year earlier. Builders are dealing with widespread shortages not only of many materials, but also of labor, as the number of open construction jobs increased to 357,000 in April. On top of this, NAHB recently estimated that regulation is now accounting for over $93,000 of the price of an average new home.
Buyers unable to find new homes in their price range are also likely to have increasing difficulty finding something in the market for existing homes. In addition to the previously mentioned low inventory, prices for existing homes have been rising as well. The median sales price for existing homes in May was $350,300, up 23.6% from a year earlier, and the 111th consecutive month of year-over-year increases.
The same counties that cry about housing affordability are the same ones making it impossible to build.