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Buying New Construction in 2022. What Has Changed Since 2021

INTRODUCTION: RECAP 2020 – 2022 

The events of the last two years have been unprecedented. Like many industries, home builders struggled during recent years with labor shortages and supply chain disruptions, as well as a spike in the price of building materials, particularly lumber. 

Meanwhile, housing markets across the nation, and especially those in the Triangle, saw soaring home price appreciation as homebuyers competed to win contracts for a very limited supply of homes coming available on the marketplace. 

New Construction Home in Cary

THE NEW CONSTRUCTION MARKET:  2021 STYLE 

These challenges could also be also felt in the new construction industry.  New construction was often a welcome alternative to the resale market in previous years.  Often builders had inventory or “quick sale” homes available for purchase or you could elect to build a more customized home.  Not in 2021!  

Because many builders could not guarantee the availability of even the most basic home building materials like fixtures, appliances, or even garage doors, consumers were forced to purchase the design options selected by the builder.  Goodbye trip to the design center!  And this was even if the builder had any available inventory.   

In our experience, many builders had long wait lists of potential buyers willing to compete for potential releases of buildable home lots or completed homes.  In April of 2021, I met with some clients that were considering a work relocation from the West Coast to Raleigh.  They were very interested in new construction and focused on a couple of projects in the Fuquay-Varina area.   

At one community, the builder had a waitlist of over 100 potential buyers and the builder was only expecting to release 25-30 lots over the following 12 months.  As my client wandered around the model, he turned to the onsite agent and asked if the builder was offering any buyer incentives.  As one would expect, the question was answered with a chuckle and eye role from the well-meaning onsite agent. 

Note:  that same builder recently contacted me saying that they were offering special incentives if my clients were willing to purchase one of their inventory homes.   

Another builder identified that they were taking names for their “bidding night” where potential homeowners would place sealed bids on soon-to-be-released lots.  As one would expect, these bids were often several tens of thousands of dollars above the builder’s list price and often included adjustments to account for increases in costs for building materials.   

WHAT CHANGED IN 2022 

Due to inflationary pressures, the Federal Reserve recently increased the federal funds interest rate, which has quickly been priced into prevailing mortgage rates.  Since June, mortgage rates have fluctuated in the mid to upper 5% range on a 30-year fixed rate mortgage, which is still up 2.5% plus higher on average from last year. 

That’s changed what buyers would pay monthly on their mortgage, by about $600 per month, leading some would-be buyers to drop out of the market to compete for buying a home. 

New Construction in Holly Springs

IMPACT ON NEW CONSTRUCTION 

The current housing market and the broader inflationary challenges of the economy make buying new construction especially challenging. Everything has gotten more expensive in the past year. 

  • Starts fell 9.6% to 1.45 million annually while permits dipped 1.1% 
  • Homebuilder confidence turned negative in August driven by declines in all three components of the index: current single-family home sales, future sales expectations, and traffic of prospective buyers 
  • The cost of building materials has gone up 19 percent in the past year, NAHB report.  

Excluding the early months of the pandemic, homebuilder confidence is now at the lowest level since 2014.

U.S. News & World Report

SHOULD I CONSIDER BUILDING IN NOW? 

The impact of the Federal Reserve’s efforts to curb inflation and the impact on the overall economy is anybody’s guess.  Much of the prevailing sentiment is that consumers should not expect much relief in the coming months.   

What is certain is that buying new construction has changed significantly as a short-term response to the changing market.  A recent article by the WRAL Tech Wire reported that some Triangle-area builders recently dropped prices, as well, by as much as 10%.

What We’ve Observed

Available Inventory…But Not Too Much Inventory 

According to the U.S. Census Bureau, this year, builders are on pace to complete more than a million new homes in this country.  

Seasonally Adjusted Supply of New Homes

While builders are keeping a close eye on current market trends. With mortgage rates rising this year and, as a result, buyer demand softening, builders are slowing their pace of new construction.  That’s because they learned their lesson in the housing crash of 2008 and want to avoid over-building and having too much inventory in their pipeline. 

Return of Builder Incentives & Price Reductions 

Over the last few months, we have observed an increase in the number of builder incentives and price reductions. According to a recent survey, 83% of builders have reduced their prices over the last three months. These price reductions have been coupled with the return of builder incentives, which have been nearly absent for the past several years. Some examples: 

  • Will contribute 1.5% of your home loan amount toward the cost of the preferred lender’s program to reduce your mortgage payments (principal and interest) for the first two years. 
  • Will contribute 1.5% of your home loan amount toward the cost of the preferred lender’s program to reduce your mortgage payments (principal and interest) for the first two years. 
  • Complimentary Closing Costs – One builder offered $5,000 in June and $8,000 in August. 
  • Choose Your Incentives – that can be applied towards closing costs, rate lock/buydown, or upgrades that can be completed prior to closing. 

WRAPPING UP 

If you’re considering moving into a new-construction home in 2022, you’ll avoid the frustrating bidding wars many other existing-home buyers are encountering. Additionally, you’ll be able to customize part of the home and enjoy the latest energy-efficient technology. However, between supply chain issues and labor shortages, it’s taking longer and costing much more to build new construction these days. Take your time comparing multiple lenders and builders, and make sure you avoid these common mistakes that other new-home buyers have made. 

New Condo Construction in Fuquay-Varina

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