New Home Construction Shows Gains as Overall Market Activity Stalls

Throughout much of the first half of the year, the housing market began to slow to a pace not seen since before the pandemic began. Buyers began pausing their home searches due to rising mortgage rates and overall economic uncertainty. Nevertheless, Minnesota’s massively undersupplied housing market has preserved the strong demand for new homes across the state. As a result, builders are looking toward the second half of the year with optimism.

According to the National Association of Homebuilders (NAHB), builder confidence in the market rose five points to 50 in May; the fifth straight month of rising confidence among builders surveyed. This index considers any reading over 50 to be of positive sentiment on a combination of market conditions such as current sales and buyer traffic.

“Lack of existing inventory continues to drive buyers to new construction,” said Robert Dietz, NAHB’s chief economist. “In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.”

New home sales were strong across the country in April, according to Zonda. Zonda’s data shows activity in this area of the market was up month-over-month, year-over-year, and compared to 2019.

This was the first time all three of these comparison points have been positive since March 2021. However, homebuilders are also feeling the pinch of rising interest rates and economic anxiety.

“Over 70% of builders are telling us that current mortgage rates are their biggest hurdle when it comes to housing demand,” said Ali Wolf, Zonda’s chief economist. “Assuming we resolve the debt ceiling debacle, there are reasons to believe mortgage rates could come down over the next 12 months on economic uncertainty and a narrowing of the spread between the 10-year Treasury yield and 30-year fixed-rate mortgages, but for now, a substantial improvement is hope rather than reality.”

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