Low mortgage rates and low inventory levels are making the demand for homebuilding more attractive to buyers, a recent Redfin report found.
New construction accounted for one of every four single-family home sales during the first three months of 2021, a record-high share. Building permits for new construction also showed a big increase.
During the first quarter, more than a quarter (25.7%) of all single-family home sales were new-construction homes, up from 20.4% in the prior-year period, according to the report.
El Paso, Texas, had the highest share of new-construction homes in the first quarter, at 53.2%, according to the analysis, which included 82 U.S. metropolitan areas.
Chicago’s new-construction share was 7.8%, with a 17.4% year-over-year change in building permits for single-family home construction.
Redfin lead economist Taylor Marr attributed the increase in new-construction sales to a rise in homebuilding and a decrease in the number of sellers putting their homes on the market.
“Building homes has become more attractive and profitable during the pandemic due to record-low mortgage rates and red-hot homebuyer demand,” Marr said in a press release. “At the same time, many homeowners have opted to stay put and refinance or remodel their existing homes instead of selling them, allowing new-construction homes to take up a larger portion of the market.”
New-residential construction projects hit their highest level since 2006, soaring almost 20% month over month in March, despite lumber shortages and elevated construction costs. During that same period, listings of existing homes fell, according to Redfin’s report.
Homebuyers are turning to the new-construction market due to fierce bidding wars happening across the country. New homes have also attracted less competition. The housing shortage in the U.S. is so severe that newly built homes in some areas have waitlists nearly 90 buyers deep, according to Redfins’s Salt Lake City market manager Ryan Aycock.
“New construction has typically been a good option for buyers who don’t want to deal with bidding wars because builders don’t usually set deadlines for offers. Buyers also like that they can often buy a new home for what it’s actually listed for rather than having to offer way over the asking price to win,” Redfin Houston real estate agent Melanie Miller said.
Regionally, the West had the lowest share of newly built homes as a portion of total single-family homes for sale, at 8.4%, followed by the Northeast at 11.4%, the Midwest at 15.4% and the South at 25.8%.
Building permits for single-family home construction jumped 25.7% year over year in the first quarter. The largest increase was in Elgin, Ill., which saw a 63.8% gain.
Only five metros in Redfin’s analysis saw a decline in single-family permits, including Newark, N.J., which had the largest drop, at 22%; followed by Allentown, Pa., which fell 19.6%; Virginia Beach, Va., which fell 10.5%; San Diego, Calif., which was down 9.2%; and Camden, N.J., which had a 5.6% decrease.