Over the past 12 months, our demand index has tracked the progress of the housing recovery by gauging consumer demand for new homes and builder demand for new lots in 33 major markets across the country. Despite a year full of challenges related to labor shortages, inclement weather, high development costs, and tightened supply of lots, builders made big inroads in 2016, most significantly in their efforts to provide affordable product for entry-level and first-time buyers.
Our November demand scores show significant progress compared with November 2014 and 2015. Buyer demand has become significantly more stable in 2016, and the average new-home demand score across all markets was 7.19 on our 10-point scale—22% higher than the November 2014 average of 5.86, and 11% higher than the November 2015 average of 6.47.
Growing demand scores for new building lots is less encouraging, as it highlights the struggle between builders who would like to start development, and the shortage of lots and high prices that are preventing them from doing so. This most significantly has impacted submarkets in Northern California, Seattle, and Nashville, Tenn. With an average score of 7.46, lot demand is now 10% higher than a year prior, and 14% higher than November 2014, when the average was 6.53.
Many Metrostudy regional directors cite rising interest rates as the biggest threat to the new-home market in 2017, on top of home price growth. However, the majority of regional directors forecast continued growth and remain optimistic about the coming year. Demand for new homes is trending higher in markets like Chicago, Phoenix, Indianapolis, and Raleigh, N.C., demonstrating that the recovery has now far surpassed where it was even a year ago, when high home demand scores were primarily isolated to big players such as Houston, Dallas-Fort Worth, Denver, and Seattle.
