The United States housing market has seen an explosion of growth over the last several years. Homes continue to rise in value and turnover quickly despite the economic upheaval of the previous 18 months. During this time, builders nationwide proved they could keep building despite any obstacles. In fact, builder sentiment, a metric used by the National Association of Home Builders, peaked in late 2020, and has stayed strong through much of 2021.
Why It’s a Builder’s Market:
The housing market often is referred to as a buyer’s or seller’s market. Various market conditions, including the amount of inventory available, the average days on the market, and the ratio between list price and sales price, can make it more favorable for a buyer or seller.
Many would say the current market is a sellers’ market. It is undoubtedly a great time to sell, and most homeowners are receiving multiple offers well over list price. However, there is an affordable housing crisis making it difficult to find a new place to live. For example, a Southern California homeowner sold her house for a 500% profit but still found herself priced out of her desired new home.
Builders have the ultimate advantage in today’s current real estate market. There is limitless opportunity for new construction and an endless line of buyers ready to purchase. They can sell a property without worrying about purchasing a new property to live on. But, even more than a sellers’ market, it is a builders’ market. Why? Because there simply aren’t enough houses to go around.
Housing Inventory Explained:
Several factors contribute to the current lack of inventory in the real estate market. Inventory was low in hot markets across the country even before the pandemic further exasperated the supply and demand.
Several factors have created the housing shortage that began more than a decade ago:
- Interest rates have been at historic lows for the past decade allowing buyers to afford a higher mortgage.
- The biggest generation in our country’s history has entered the real estate market, as Millennials begin their climb on the property ladder.
- People living in urban areas began a migration relocating to a more rural landscape in 2020 following wide-sweeping lockdowns.
- More investors have flocked to the market in search of quick appreciation.
- Homeowners are holding on to their homes in an attempt to avoid a significant life transition during a pandemic. Baby boomers, a group at higher risk for coronavirus, make up a majority of current homeowners. They are reluctant to move out or downsize, leaving fewer homes available for those ready to upgrade.
It is currently estimated that there are an additional 5 million homes needed across America, up from 3.84 million in 2019. According to a Realtor.com report, “Between 2015 and 2020, the average rate of household formation was 1.5 million households per year, while the average rate of home completion was 806,000 homes per year.” If building and household formations were to continue at this clip, the gap between these metrics would never close. If the rate of home completions doubled to an average rate of 1.6 million home completions per year, it would still take over 20 years to close the existing gap.”
Builders Are Rising Above Current Market Conditions:
Builders are rising to the challenge of meeting the demands for housing. It hasn’t all been easy for builders. Indeed, there have been various strains put on their projects. Yet, they continue to meet the demand for housing.
New construction continues to improve despite current supply chain issues, lack of skilled labor and materials. According to the U.S. Census Bureau, privately-owned housing starts in September were 7.4% above the rate of September 2020.
New home construction is trending in the direction it needs to, and it will just take some time to ease the demand for housing.
How Can Builders Capital Help?
Builders Capital provides stability to borrowers as economic conditions increase housing demands. Our in-house servicing team works efficiently to fund draws and keep builders moving in this fast market, allowing them to make strides in their projects and acquire new property to develop on. Our innovation keeps us one step ahead of the market as we develop new products to address the pressing needs of the nation’s homebuilders. In addition, our recently acquired capital gives us the ability to lend at a sustained pace. Whether you are thinking about your next project, or in the middle of one, Builders Capital is a resource you can depend on.