Want a New Home for the Holidays? Time to Get Moving

While the spring and early summer housing markets are traditionally the most active for real estate transactions, fall buyers frequently set a goal of celebrating the holidays in their newly built home. But since building a new home from an empty lot to the final touches takes an average of six months, buyers on a timeline may need a “spec house” – one already under construction by the builder but not yet under contract. Thankfully, the supply of newly built homes is beginning to increase just in time for the fall season.

While shortages of materials due to global supply chain disruption in 2020 and 2021 and high demand for homes have made for a challenging housing market the past year, the fall market may be a little easier for buyers.

“We anticipate a gradual increase in the supply of homes in the fall of 2021,” says Robert Dietz, chief economist of the National Association of Home Builders. “Basically, some of the rapid acceleration of demand and prices in 2020 began to cool off a little during the first half of 2021. That just means instead of the market being extremely hot, it will simply be hot.”

While housing markets vary widely in terms of availability and price, demand is expected to remain high – especially early this fall as mortgage rates continue to stay low.

“We’ll still see a shortage of homes and record low mortgage rates in the fall, which means we should also continue to see double digit home price growth,” says Frank Nothaft, chief economist of CoreLogic, a provider of financial, property, and consumer data analytics. “This may start to slow a little late in 2021 and early in 2022 because demand and supply will even out a little. Prices are rising so much that this pinches the budget of some buyers, especially when mortgage rates eventually rise.”

Availability and Affordability of Newly Built Homes

Affordability is of prime importance to every buyer. No matter what price range you’re looking in, you want to find a home that fits your comfort level and budget. For some buyers in the past, that meant looking at existing homes instead of considering new construction. Typically, the median sales price of a newly built home was about 15% higher than the median sales price of an existing one. But in recent years, prices of existing homes accelerated due to an extreme shortage compared to demand. Now, newly built and existing homes are comparably priced and sometimes new ones are less costly. That means more homebuyers can comfortably expand their home search to newly built homes.

According to the Census Bureau, the median sales price of a newly built home in June was $361,800, compared to $363,300 for an existing home, per the National Association of Realtors.

While price matters, homebuyers also need to know they can find a home. A 6.3-month supply of newly built homes was available in June, according to the Census Bureau. This means that if demand stayed the same and no new homes were listed, all homes would be sold within that time. Typically, a six-month supply of homes is considered a balanced market without an over or undersupply compared to demand. Far fewer existing homes are available, according to the National Association of Realtors; they reported a 2.6-month supply of homes in July.

Forecasters are optimistic that more new homes will be available this fall. Their outlook is based on the number of single-family houses under construction in July but not completed. The number increased to 689,000, the most since 2007, according to the Census Bureau. However, some of those homes may already be under contract.

Construction starts, which refer to building beginning on houses, reached their highest level since June 2006 in March 2021. Many of those homes should be complete this fall.

Supply shortages should also ease a little this fall, which may speed up construction.

Spec House Solution

The traditional method of buying a newly built home is to choose your lot and floor plan, then make design choices that are available from the builder. But if you’re in a hurry and can’t wait six months or longer to move into your new home, a spec house may be a solution.

Sometimes called move-in ready, inventory, or immediate delivery homes, these homes are normally listed on builder’s websites. While some are immediately available, others are at some stage of construction from initial framing to the final finishes. Availability can range from a few weeks to several months. In many cases, you can move into an inventory home within 30 to 45 days, which is similar to the timeline from contract to closing on an existing home. But when you move into your newly built home, you won’t need to make repairs or updates.

The main advantage of a move-in ready home is that you don’t have to wait during construction or worry about potential delays due to weather or a shortage of labor or supplies. For some buyers who love the idea of a newly built home but don’t want to make decision on fixtures and finishes, a home with options already selected is ideal.

If you’d like to personalize your home, you may still have that opportunity, depending on how close the house is to completion. While the lot, floor plan, and exterior choices are nearly always made in advance on a spec house, some interior choices such as flooring, appliances, cabinets, counters, light fixtures, and paint colors may still be open. In some cases, there may only be a few items that need your input, such as paint.

Buyers may sometimes hope for a discount on a spec house, but typically the homes are priced the same as similar ones in the community and include the cost of the optional features or upgrades that the builder chose.

Moving Now Rather than Waiting

When your goal is to move by the holidays, it’s smart to start shopping in late summer and early fall rather than wait. In fact, waiting for the market to change in any season often becomes frustrating for buyers as they watch prices rise.

“The demand for new homes is there this fall among Millennials who have reached the prime buying age and among Baby Boomers who are fueling the demand for vacation homes,” says Dietz. “But the challenge is that construction costs are higher and housing shortage continues, both of which drive prices up. Eventually – in 2022 and 2023 – interest rates will start to rise, too, which will cut further into affordability.”

Whether you want to gather friends and family around your Thanksgiving table, hope to settle into your new place in December, or are looking forward to beginning your new life on New Year’s Day, the time to visit model homes virtually or in person is now.