The housing market is still missing up to 7.2 million homes, according to a new Realtor.com analysis. In 2023, an additional 1.7 million households formed, resulting in 17.2 million new households from 2012 to 2023.
Construction started on 947,000 single-family homes and 472,700 multifamily homes last year, placing overall housing starts at 14.7 million homes between 2012 and 2023.
The 974,000 single-family starts are 5.8% fewer than in 2022, though still more than in any other single year back to 2010. While the 7.2 million gap between single-family housing starts and household formations at the end of 2023 grew from 6.5 million at the end of 2022, it is the third smallest single-year gap between households and housing starts since 2016.
"The U.S. is in a long-term housing shortage with the construction of new homes failing to keep pace with a growing population. While a recent uptick in new construction has the potential to alleviate the historically low level of homes for sale on the market today, it's going to take some time to close the gap," says Danielle Hale, chief economist at Realtor.com.
"That said, the elevated level of both single- and multifamily construction coming to market this year is likely to put downward pressure on rent prices in many markets, welcome news for renters. It also means that the higher than usual share of new homes for sale is likely to continue, giving home shoppers willing to consider new homes more options."
The overall gap between household formations and total housing starts, including both single-family and multifamily homes, widened from 2.3 million housing units between 2012 and 2022 to 2.5 million units at the end of 2023.
The analysis found a shift toward more affordability in new construction as 43% of new homes sold for less than $400,000 in 2023 compared with 38% in 2022. As builders offered price cuts and incentives to prompt sales, they also focused on smaller homes that further contributed to the lean toward affordability.
In 73 of the top 100 metros, single-family permitting activity has lagged household growth. In Sun Belt markets, household formations have outpaced permitting the most significantly. Some of the metros with the largest single-family gap include San Antonio-New Braunfels, Texas; Austin-Round Rock, Texas; and Deltona-Daytona Beach-Ormond Beach, Florida.
The top 10 list of metros by size of gap relative to population includes three Texas metros, five Florida metros, and two Washington metros. The analysis notes that these areas have seen significant population growth due to the cost-of-living affordability and overall desirability.
In relation to those looking for a home, the typical new-home buyer today skews younger, wealthier, and more pet-friendly compared with non-new-home buyers. While new construction buyers were previously more likely to be baby boomers, today it's millennials, according to Realtor.com’s New Construction Consumer Report.
Among respondents who bought new construction in the past 12 months, 48% were millennials. However, most of the surveyed new construction buyers are experienced home buyers, with 75% having previously owned a home.
While price is a top concern for new-home shoppers, location matters most, with 28% of new construction respondents placing location above price (24%) as their prime initial consideration factor. The report also noted that reputation rounded out the top three most important factors. Nearly half of surveyed buyers (48%) say they considered a builder's reputation and ratings as part of their selection criteria.
Repeat buyers are top future buyers, the report found, as 91% of recent new-home buyers say they would purchase new construction again.
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