Homebuilders Fill Housing Supply Void As Buyers Grapple With Sticker Shock For Existing Homes

Despite high interest rates, the nationwide housing shortage has given homebuilders a boost.

New home sales spiked 20% year over year with 763,000 houses sold in May. Of all the new homes available in the U.S., 28% are offered by homebuilders compared to the historical norm of 13%, according to a recent report from John Burns Research and Consulting.

“The strong demand for housing that had been curtailed by sticker shock and affordability challenges has returned while the housing market adjusted prices and incentives, including rate buydowns and production costs, in order to enable customers to afford needed shelter,” Lennar Executive Chairman Stuart Miller said during the company’s second-quarter earnings call.

While the average sales price per home delivered by Lennar, the nation’s second-largest homebuilder, dropped to $449,000 in the second quarter compared to nearly $500,000 at the peak last year, deliveries were up 3% to 17,074, and new orders increased 1% year over year to 17,885.

 “This environment seems to represent a new normal that is formed in the wake of the Federal Reserve’s aggressive interest rate hikes starting last year,” Miller said.

The success publicly traded homebuilders are enjoying also is propelling their stock prices, which are up 85% year to date on average. Lennar’s stock is up 14% in just the last three months.

Danielle Nguyen, vice president of research for John Burns, said the company will monitor the market to see whether the strength continues into the seasonally slower summer months.

“Homebuilders are successfully stepping into the supply void, adding communities and drawing buyers to the new home market,” Nguyen wrote in her report. “Homebuilders have not only weathered the storm but have thrived amidst adversity.”

Although homebuilders are seeing a lot of demand for their products because of the housing shortage, they still face several challenges, including getting loans. The bank failures earlier this year put lenders on edge — especially after some customers pulled out their deposits.

“The lack of resale inventory means prospective homebuyers who have not been priced out of the market continue to seek out new construction in greater numbers,” said National Association of Home Builders Chairwoman Alicia Huey, a custom home builder and developer in Birmingham, Alabama. “At the same time, builders are troubled over rising mortgage rates approaching 7% and continue to grapple with supply-side challenges, including ongoing scarcity of electrical transformer equipment and growing concerns about lot availability.”

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