New-Home Sales Building Momentum As Entry-Level Buyers Re-engage in Homebuying



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Research Brief
April 2017
Developing Trends
The annual uptick in existing-home sales was driven by trading among higher-end homes as the inventory of affordable listings remained tight. The slowdown in sales of lower-cost properties presents challenges to first-time homebuyers, channeling many to new builds. Though developers face cost issues in building entry-level housing, new product is quickly sold.
Current demographics indicate that the U.S. should be producing between 1.2 million and 1.3 million households per year. However, a tight residential market and a lagging pace of single-family development have resulted in a housing shortage. Though apartment deliveries will reach peak levels in 2017, a national housing deficit persists, restraining household formation. If single-family construction can rebound and stimulate the formation of these pent-up households, positive effects across an array of industries would ripple throughout the economy.
U.S. apartment vacancy reached 4.6 percent in the first quarter as tremendous housing demand kept absorption in alignment with increased construction.
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New-Home Sales Building Momentum
As Entry-Level Buyers Re-engage in Homebuying
Wage growth, rising consumer confidence and a pickup in entry-level buying contributed to a 12.8 percent annual gain in new-home sales in February. Purchases of lower-priced properties drove the overall increase, signaling the gradual return of first-time homebuyers. Demand exists for affordable product; however, increasingly high labor and land costs make entry-level home development difficult to pencil out in many major metros. Healthy housing demand coupled with limited for-sale inventory drove the median sales price of existing homes up by 7.7 percent over the last year through February, the strongest gain in 13 months. Aggressive price appreciation and a shortage of affordable listings have restrained sales activity. Rising prices will act as a barrier to homeownership, keeping many households in rentals and sustaining underlying apartment demand.
$229,900 Median price of existing single-family home in February 2017 3.8 Months of supply at current sales pace in February 2017
* Through 1Q17
** Through February 2017
Sources: Marcus & Millichap Research Services; U.S. Census Bureau; MPF Research; National Association of Realtors; National Association of Home Builders
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The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
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