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The share of homes for sale that is newly constructed has nearly doubled since before the COVID-19 pandemic began as fewer homeowners list their existing properties and builders complete more unsold houses.
About 29 percent of homes for sale in the third quarter of the year were newly built, compared to 17 percent during the same period in 2019, according to a report Tuesday from Redfin. It’s the highest such share recorded in any third quarter dating back at least as far as 1999.
“Homebuilders started scores of projects during the pandemic moving frenzy and are now stuck with a bunch of new houses that are hard to sell because mortgage rates have risen to 7 percent,” Redfin agent Faith Floyd, who is based in the Houston area, said in the report. “Builders are giving away everything but the kitchen sink to attract bidders.”
While this trend began to accelerate during the pandemic, newly built homes have been making up a greater percentage of all home listings each year since 2011. That’s about when the homebuilding industry began to scale up its activities in earnest after the housing crash, the report points out.
Homebuilders are likely to reduce the number of new single-family projects they start next year as they work to move the unsold inventory, Redfin Deputy Chief Economist Taylor Marr said in the report.
“Homebuilders will take on fewer new projects next year as they focus on getting their existing projects sold,” Marr said. “Builders will also shift more toward multifamily units, for which there is still relatively high demand because rents remain high.”
The origin of the inventory glut was a pandemic-era spike in demand for new homes, fueled by low mortgage rates that enticed builders to construct 14 percent more single-family starts in 2021. Some of these projects, which take months to complete, have been wrapping up in recent days.
Builders finished construction on more single-family housing units in the third quarter of 2022 than in any quarterly period dating back to 2007, Redfin notes.
But the demand for new homes that existed when these projects began has since fallen substantially. More buyers have been backing out of contracts for new homes and fewer have been appearing in the pipeline.
As a result, more homebuilders have been offering incentives to homebuyers — and to their agents.
Some builders are offering agents bonuses, plus a 5 percent commission, Floyd said. That’s a far cry from the typical commission of 3 percent before the pandemic began and the 0 percent commission that many builders went with during the pandemic.
Compared to builders, existing homeowners have been slower to turn to incentives, Floyd said.
“A lot of individual sellers are still pricing their homes too high, because they’re having a hard time accepting that the pandemic housing boom is over, and they’re not going to get 30 offers like their neighbor did last year,” Floyd said in the report.