New Homes Don’t Cure Affordability in California
Freshly built houses are larger and pricier, especially in San Jose with a 79% price gap. Building new homes in California and elsewhere has done little to make housing more affordable, according to a study. New home construction won’t cure the growing challenge of home affordability because most homes being built are pricier and larger than older homes sold on the market, as reported by the Orange County Register citing a study by Zillow.
Zillow compared the sales of new homes and existing homes in 46 U.S. metropolitan areas in May. In cities with the largest gaps — including San Jose, New York, and Miami — new homes were typically 40 percent larger compared with older homes, and 80 percent pricier.
Of six cities or regions in California — San Jose, Sacramento, San Diego, Los Angeles-Orange County, the Inland Empire, and San Francisco — buyers paid $1.14 million for new homes compared to $935,000 for existing ones. So freshly built homes are 22 percent more expensive.
The bulk of those higher prices are because builders typically sold a 2,020-square-foot house compared to 1,585 square feet for existing ones. New homes were typically 27 percent bigger.
Across the nation, buyers of new homes last spring paid a median price of $418,000, 15 percent more than the typical price of $365,000 for older homes. U.S. buyers of new homes typically got 1,990 square feet, 16 percent larger than the median 1,710 square feet for existing homes.
Some of the premium prices for new homes can be tied to mortgage rate discounts offered by builders.
The affordability gap was especially pronounced in San Jose, where a typical newly built home in May cost $2.87 million, compared to $1.6 million for a typical existing home, which was 79 percent cheaper and 48 percent smaller.
In Los Angeles and Orange County, a typical new home cost $1.15 million, 19 percent more than a median $970,000 for an existing home. New homes were also 30 percent larger, at 1,970 square feet versus 1,520 square feet.
In the Inland Empire, a typical new home cost $610,805, or 9 percent higher than a typical $562,500 existing home. New homes were 15 percent larger, at 1,980 square feet versus 1,720 square feet.
The price gaps are the result of myriad policy and marketplace conditions that make it far easier to develop high-end homes, according to the Register. Fancy new communities are simpler to sell politically in the local regulatory process.
Premium housing can be sold to wealthier buyers, with sales usually producing fatter profits.
Catering to a higher-end clientele can also be an easier sell to investors and bankers who put their dollars behind construction plans. In recent years, there are enough buyers with deep pockets willing to pay for the premium, newly built homes.
The Register acknowledged that any new supply of housing — at no matter what the price — eases “inventory imbalances.”
But it’s a glacial process for noteworthy affordability improvements to trickle down from housing’s high end to relieve house hunters seeking a modest house to build equity.
New Homes Don’t Cure Affordability in California
Freshly built houses are larger and pricier, especially in San Jose with a 79% price gap. Building new homes in California and elsewhere has done little to make housing more affordable, according to a study. New home construction won’t cure the growing challenge of home affordability because most homes being built are pricier and larger than older homes sold on the market, as reported by the Orange County Register citing a study by Zillow.
Zillow compared the sales of new homes and existing homes in 46 U.S. metropolitan areas in May. In cities with the largest gaps — including San Jose, New York, and Miami — new homes were typically 40 percent larger compared with older homes, and 80 percent pricier.
Of six cities or regions in California — San Jose, Sacramento, San Diego, Los Angeles-Orange County, the Inland Empire, and San Francisco — buyers paid $1.14 million for new homes compared to $935,000 for existing ones. So freshly built homes are 22 percent more expensive.
The bulk of those higher prices are because builders typically sold a 2,020-square-foot house compared to 1,585 square feet for existing ones. New homes were typically 27 percent bigger.
Across the nation, buyers of new homes last spring paid a median price of $418,000, 15 percent more than the typical price of $365,000 for older homes. U.S. buyers of new homes typically got 1,990 square feet, 16 percent larger than the median 1,710 square feet for existing homes.
Some of the premium prices for new homes can be tied to mortgage rate discounts offered by builders.
The affordability gap was especially pronounced in San Jose, where a typical newly built home in May cost $2.87 million, compared to $1.6 million for a typical existing home, which was 79 percent cheaper and 48 percent smaller.
In Los Angeles and Orange County, a typical new home cost $1.15 million, 19 percent more than a median $970,000 for an existing home. New homes were also 30 percent larger, at 1,970 square feet versus 1,520 square feet.
In the Inland Empire, a typical new home cost $610,805, or 9 percent higher than a typical $562,500 existing home. New homes were 15 percent larger, at 1,980 square feet versus 1,720 square feet.
The price gaps are the result of myriad policy and marketplace conditions that make it far easier to develop high-end homes, according to the Register. Fancy new communities are simpler to sell politically in the local regulatory process.
Premium housing can be sold to wealthier buyers, with sales usually producing fatter profits.
Catering to a higher-end clientele can also be an easier sell to investors and bankers who put their dollars behind construction plans. In recent years, there are enough buyers with deep pockets willing to pay for the premium, newly built homes.
The Register acknowledged that any new supply of housing — at no matter what the price — eases “inventory imbalances.”
But it’s a glacial process for noteworthy affordability improvements to trickle down from housing’s high end to relieve house hunters seeking a modest house to build equity.
Framing Lumber Prices | NAHB
The framing lumber composite price rose 1.6% during the week ending Aug. 2. It was the third consecutive weekly increase, after prices had dropped just three weeks prior to their lowest level since April 2020. NAHB continually tracks the latest lumber prices and futures prices, providing an overview of the behaviors within the U.S. framing lumber market. The information is sourced each week using the Random Lengths framing lumber composite price, which is comprised of prices from the highest volume-producing regions of the U.S. and Canada.
Softwood lumber prices have been especially volatile in recent years, largely because of increased demand, rising tariffs, supply-chain bottlenecks, and insufficient domestic production. To address the high prices for lumber, NAHB has advocated for the following actions:
- Monitoring and addressing trade policy issues
- Increasing domestic production and reducing reliance on imports
- Improving transportation infrastructure
- Expanding the availability of credit for home builders
In addition to narrowly defined framing lumber, products such as plywood, OSB, particleboard, fiberboard, shakes, and shingles make up a considerable portion of the total materials (and cost) of a new home. Surveys conducted by Home Innovation Research Labs show that the average new single-family home uses more than 2,200 square feet of softwood plywood and more than 6,800 of OSB, in addition to roughly 15,000 board feet of framing lumber. Softwood lumber is also an input into certain manufactured products used in residential construction — especially cabinets, windows, doors, and trusses.
Final pricing for home buyers is somewhat higher because of factors such as interest on construction loans, brokers’ fees, and margins required to attract capital and get construction loans underwritten. As explained in NAHB’s study on regulatory costs, for items used during the construction process, the final home price will increase by nearly 15% above the builder’s cost.
The bottom line is that changes in softwood lumber prices directly impact the price of a new home. This, along with rising wages for construction workers and higher interest rates, is one of the reasons the housing market is experiencing declining affordability.
Housing Market Predictions For 2024: When Will Home Prices Be Affordable Again? – Forbes Advisor
The housing market might finally be entering a transitional phase. Summer sales have been tepid thus far, but there are signs that activity could heat up by the end of the summer as mortgage rates edge down and much-needed resale inventory continues to enter the market, giving buyers more options. Other good news for home shoppers is the ongoing decline in the median price for a new home—now below the median resale home price—even as builders continue offering buyer incentives.
Nonetheless, experts say the housing market will only see renewed momentum once mortgage rates drop enough to ease affordability challenges and incentivize homeowners locked in at low rates to move so inventory grows substantially to meet demand. U.S. home prices posted a 5.9% annual gain for May, down from a 6.4% annualized gain in April, according to the latest S&P CoreLogic Case-Shiller Home Price Index. Yet, even as this annual gain marks a slowdown, the index still broke the previous month’s record high, indicating home prices are still out of reach for many.
Despite affordability obstacles, other indicators suggest that the market is tilting toward buyers. Zillow reports that roughly 25% of its listings saw price cuts in June. Meanwhile, experts are hopeful that the Federal Reserve (Fed) will finally cut the federal funds rate in September, as inflation is cooling down sustainably toward the Fed’s 2% target. Mortgage rates indirectly track this benchmark interest rate banks use as a guide for overnight lending.
For a housing recovery to occur, several conditions must unfold. Inventories of homes for sale need to turn considerably higher, mortgage rates need to cool off, and home prices need to stabilize. The length of time it takes for these changes to happen will vary based on factors such as buyer and seller market power, builder size, and supplier size. However, experts generally don’t expect to see a wave of foreclosures in 2024 due to homeowners having substantial home equity.
New homes are getting smaller. That could be big news for first-time buyers | CNN Business
After years of saving, first-time homebuyer Jordyn Carias and her partner had to reassess their expectations and settle on a smaller home to find something affordable. This shift reflects a broader trend in the housing market, as homebuilders are now focusing on building smaller homes with an eye towards first-time buyers.
In recent history, Americans have desired larger homes, but the rising cost of homeownership and changing preferences have led to a reversal in this trend. The median size of new single-family homes has decreased by 9% since its peak in 2015, with formal dining rooms and “bonus” rooms disappearing.
Homebuyers are increasingly open to the idea of smaller dwellings, and the typical buyer now wants a home that is 2,067 square feet, still smaller than the typical new home size last year. However, smaller, more affordable homes under 1,000 square feet are becoming harder to find in most US suburbs.
The shift towards smaller homes is driven by affordability challenges and the changing demands of consumers. Homebuilders are reducing home sizes and building on smaller lots to support home sales. This strategy seems to be helping buyers, as the median sales price of existing homes and new homes has shown some improvement.
While some homebuyers appreciate the lower maintenance requirements of new construction, others are turning to existing homes due to the omission of appliances and other extras in new homes. Despite these challenges, many first-time buyers are excited to carve out their own slice of homeownership.