July 2024

New home construction is on the rise in 2024

Month	Single Family Housing Starts SA	Single Family Housing Completions SA
2024-03-01	1,022,000	947,000
2024-02-01	1,167,000	1,058,000
2024-01-01	1,018,000	899,000
2023-12-01	1,064,000	1,021,000
2023-11-01	1,126,000	969,000
2023-10-01	974,000	990,000
2023-09-01	966,000	989,000
2023-08-01	948,000	954,000
2023-07-01	988,000	1,018,000
2023-06-01	930,000	1,008,000
2023-05-01	1,012,000	1,007,000
2023-04-01	847,000	979,000
2023-03-01	843,000	1,035,000
2023-02-01	835,000	1,029,000
2023-01-01	823,000	1,018,000
2022-12-01	887,000	995,000
2022-11-01	804,000	1,102,000
2022-10-01	858,000	974,000
2022-09-01	887,000	1,048,000
2022-08-01	919,000	1,020,000
2022-07-01	898,000	1,004,000
2022-06-01	1,010,000	1,009,000
2022-05-01	1,067,000	1,043,000
2022-04-01	1,176,000	1,024,000
2022-03-01	1,179,000	1,047,000
2022-02-01	1,211,000	1,059,000
2022-01-01	1,157,000	932,000
2021-12-01	1,217,000	1,021,000
2021-11-01	1,231,000	954,000
2021-10-01	1,087,000	944,000
2021-09-01	1,094,000	937,000
2021-08-01	1,099,000	952,000
2021-07-01	1,136,000	948,000
2021-06-01	1,173,000	917,000
2021-05-01	1,109,000	958,000
2021-04-01	1,043,000	1,004,000
2021-03-01	1,227,000	1,004,000
2021-02-01	1,050,000	981,000
2021-01-01	1,115,000	1,022,000
2020-12-01	1,311,000	951,000
2020-11-01	1,173,000	926,000
2020-10-01	1,180,000	916,000
2020-09-01	1,116,000	927,000
2020-08-01	1,029,000	903,000
2020-07-01	1,012,000	949,000
2020-06-01	904,000	933,000
2020-05-01	750,000	827,000
2020-04-01	676,000	876,000
2020-03-01	879,000	881,000
2020-02-01	1,039,000	963,000
2020-01-01	968,000	885,000

As the graph above shows, 2023 saw a steady upward trend for new construction permits and starts that has continued into 2024. The current housing inventory slump has led many prospective homebuyers who otherwise wouldn't have considered looking into new construction to consider building a home.

With post-pandemic inflation raising the price of building materials considerably, home builders have had to pivot in several key ways to keep potential homebuyers enticed.

Let’s dig into the current moment and the prospects for the future.

The inventory drought

The current low housing inventory is primarily due to over 82% of current U.S. homeowners having a mortgage rate below 5%, and 62% having a rate below 4%.^Footnote2 At the time this article was written (May 2024), rates for 30-year fixed-rate mortgages were above 7%.

Despite a dramatic rise in home prices in recent years, the profit from selling a home is offset by the steep increase in monthly mortgage payments caused by much higher mortgage rates. To buy a home of similar value to their current home, homeowners could be facing a monthly mortgage payment that could be nearly double their current payment. This conundrum has caused a majority of homeowners to stay put for the foreseeable future.

The current numbers

Typically, new construction accounts for about 10% to 12% of total home sales. In recent months, that number has soared to 30%.^Footnote3 The main reason for this shift is that prospective homebuyers who would otherwise be hesitant to consider new construction have had to expand their horizons in this market.

According to the National Association of Home Builders (NAHB), single-family housing starts are on course to increase 4.7% nationwide this year and another 4.2% in 2025, reaching a pace of 1.3 million units.^Footnote3

Aside from the West, where new single-home construction declined by 14.5%, the rest of the nation has experienced significant growth in 2024. Single-home construction shot up a whopping 40.2% in the Midwest, 16.4% in the Northeast, and 16.6% in the densely populated South.^Footnote4

The rise of the townhome

To manage the higher material costs due to inflation, home builders are reducing the size of homes being built. That's one of the contributing factors to the growing popularity of townhomes in new construction. Another factor is the often lower price tag that a townhome has compared to a detached single-family unit.

According to the NAHB, townhome construction has surged to its highest rate in more than 17 years, accounting for nearly 20% of housing starts in the final quarter of 2023 — a 27% increase from the same quarter in 2022.^Footnote3

The incentives

With 30-year fixed-rate mortgage rates hovering around 7% — nearly double what they were just a few years ago — and low inventory leading to spikes in housing prices, home builders are consistently turning to incentives to draw in more homebuyers.

These incentives^Footnote5 include:

Covering closing costs, which usually amount to 3%–6% of the home’s price.
Free upgrades, including deluxe appliances, higher quality countertops and high-end fixtures.
Special financing opportunities, such as interest rate buydowns and low-down-payment financing.
Good Builder Warranties, providing homebuyers with peace of mind knowing their home is covered for more than the typical six-month to two-year window.

The pros and cons of new construction

There are a few notable cons to new construction, the most obvious being time frame: if you need to buy a home and move in ASAP, new construction may not be feasible. Financing options are limited because lenders consider new construction to be riskier, the interest rate is often higher, and most construction loans require you to pay interest throughout the construction period.

The pros, on the other hand, are very appealing. At the top of the list is the lack of need for repairs and renovations: with brand new materials and mechanical systems, repairs shouldn’t be necessary for several years.

An equally important pro is energy efficiency: since new construction is built to comply with the latest building codes, those homes will have more energy-efficient materials, windows, appliances and HVAC systems — all of which should keep utility bills lower than existing homes.

The last — and possibly most important — pro is the level of safety in the build. Again, since new homes are required to comply with the latest building codes, they will be more structurally sound than older homes, and built to combat the types of natural weather events (wildfires, earthquakes, hurricanes, flooding and so on) that may be common to a particular geographic region.

For decades, new construction had been viewed as an option mostly reserved for more affluent homebuyers and seemed a distant dream for the average American. Well, the times are changing, and that distant dream is becoming a reality for more and more homeowners.

1 U.S. Census Bureau and U.S. Department of Housing and Urban Development, New Residential Construction, April 16, 2024 Release. Accessed April 2024.

2 “Nearly Everyone With a Mortgage Has an Interest Rate Below 6%, Prompting Many to Stay Put.” Written by Dana Anderson. Published June 14, 2023. Accessed March 2024.

3 “New-Home Construction Is Expected to Grow in 2024.” Written by Melissa Dittmann Tracey. Published February 29, 2024. Accessed April 2024.

4 “US single-family housing starts, permits near two-year highs.” Written by Lucia Mutikani. Published March 19, 2024. Accessed April 2024.

5 “New Construction Builder Incentives Are on the Rise.” Written by Alicia Persson. Published March 13, 2024. Accessed April 2024.

MAP6626450 | 05/2024

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