New construction is having its time in the sun.
Applications for new-home purchases jumped 22.2% in December 2023 compared to a year ago, according to data from the Mortgage Bankers Association (MBA) Builder Application Survey (BAS) released this past Thursday.
This marks the 11th consecutive year-over-year lift in new-home purchase applications.
“The low level of existing homes for sale continues to divert prospective buyers to newly built homes,” Joel Kan, MBA’s vice president and deputy chief economist, said in a news release.
“Compared to November 2023, applications were down 4 percent on a non-seasonally adjusted basis, consistent with December declines for the past two years.”
New-home sales fell 11.5% in December compared to November’s pace of 677,000 units on a seasonally adjusted level, the MBA survey found.
Conventional loans accounted for 64.5% of new-home mortgage applications. Meanwhile, FHA, VA and USDA loans comprised 25.1%, 9.9.% and 0.5%, respectively, of new-home purchase applications, the MBA reported.
With building costs still elevated, the average loan size for newly built homes jumped to $405,368 in December, up from $390,049 in November, according to MBA data.
Single-family housing starts jump 15.8% year over year in December
Builders faced some challenges in 2023 that led to fewer housing starts in December but the outlook for 2024 is looking up, according to a new report from the U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau.
December saw 1.46 million housing starts, a 4.3% decline from November, HUD and the Census Bureau found.
“The December reading of 1.46 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months,” according to the report.
Despite the overall dip, lower mortgage rates at the end of the year helped push construction of single-family homes to 1.03 million units on a seasonally adjusted annual rate in December. That’s up 15.8% from a year ago, but down 8.6% from November.
Multifamily starts of condos and apartment buildings climbed 8% to a 433,000 annualized pace in December, according to the report.
Housing starts data show promising signs for 2024
Overall, total housing starts ended 2023 at 1.41 million, down 9% from 2022’s total of 1.55 million. Single-family and multifamily starts totaled 945,000 (down 6%) and 469,000 (down 14.4%), respectively, from a year ago.
“Mortgage rates steadily fell below 7% in December, and lower rates combined with a lack of existing inventory in most markets helped to keep single-family production above a one million-unit annual pace,” Alicia Huey, chairman of the National Association of Home Builders (NAHB), said in a statement reacting to the joint report. “And the fact that our latest surveys showed a big increase in builder confidence is an indicator that we can expect housing starts to improve in the coming months.”
The outlook for new-home building in the year ahead is generally positive — with some headwinds thrown into the mix.
“Moderating mortgage rates are expected to provide a boost to new home construction in 2024, but an uptick in building material prices and a shortage of buildable lots and skilled labor are serious challenges for home builders,” Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis, said in a statement.
She added, “A rise in single-family permits is a sign that we will see the single-family market pick up steam in the near future. However, due to tighter financing, the multifamily market will weaken.”
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Brian Buffini’s said in his 2024 Bold Predictions that lower rates are to fuel the pent-up demand. This is a shortened version of his full rapport which you can see on his website -
Mortgage Rates Cut and Sales to Increase
Approximately 90% of homeowners currently have a mortgage rate below 6% while nearly 25% have a rate below 3%.
It’s important to remember, Buffini said, that those extremely low rates of the past few years were an anomaly and created in response to the pandemic-induced recession. It is highly unlikely the market will ever see rates in that range again.
When the Federal Reserve raised interest rates over the past year striving to corral inflation, many potential homebuyers delayed their plans for a new home due to rapidly rising mortgage rates, which eventually crested at 8%, Buffini said. Existing homeowners, who enjoyed their low rates (even if they were not in a home they loved) were reluctant to sell and move to another home.
“To go from 2.6% to 8%, that is a shock to the system,” Buffini said.
Buffini, as well as many other experts, predicts that the Fed is finally done raising rates now that inflation is trending downwards.
“I believe you’ll see cuts in mid-year of next year,” Buffini said. “I’d say about July, you’re going to see the Fed actually make the formal cuts. I believe we’ll finish the year below 6%.”
Many homebuilders have already been offering mortgage buy-downs at that rate, which has brought “buyers massively into the game,” he said.
Regarding existing-home sales, Buffini said that he does not agree with many analysts who project next year will be “the same as it is this year.”
“This will not be the case,” he said. “What you’re going to see is a tight first quarter, a loosening second quarter. Rates are going to drop in the third and fourth quarters and we’ll be off to the races.”
“There will be an extraordinarily strong finish to next year,” Buffini added. “I’m projecting around 4.6 million sales, about a 20% increase next year. I also believe that it’s going to boomerang and continue to horseshoe around into 2025.
I think we’re going to have the biggest selling season in the spring of 2025 we’ve had in 10 years and we’re going to have a very, very solid 2025 with about another 15% growth.”
As you can see the housing market is looking very positive for the summer of 2024 and into 2025. The secret is to start preparing yourself now to be a future successful homeowner or seller. Contact me today to start your new adventure and I will guide you step-by-step. And so by the way...I appreciate your referrals and will take very good care of them.