In the current housing market, US homebuilders possess a strategic advantage to navigate issues like scarce inventory and affordability constraints, a situation that has persisted for over three decades. The limited availability of resale homes could continue driving demand towards the new home market, reads the latest publication of TBC Capital - Global Industry Overview - Homebuilders.
"Builders have effectively employed pricing strategies and incentives to ensure more manageable monthly payments, making their offerings appealing. Amidst this, potential tightening credit conditions, potentially affecting smaller builders' capital access, might drive greater market share towards well-capitalized publicly traded entities.
New construction represented 11% of total US home sales last year and is expected to gain more prominence in the medium term due to the constraints faced by resales. Over the past five decades, new homes have typically constituted around 15% of total sales. This share fell to a low of 7% in 2011.
The existing-home market is likely to relinquish some market share as the scarcity of inventory propels buyers towards new construction. This situation has been intensified by a spike in mortgage rates, reaching over 7%, deterring homeowners from relocating. Consequently, transaction volume declined by 24% in 2023 and is projected to decrease notably this year before rebounding from this lower point.
The prevailing dearth of existing-home inventory will persist in channelling buyers toward new construction. Homeowners' reluctance to list properties due to concerns about losing historically low mortgage rates or offering more affordable prices sustains the low resale supply," the authors of the report say.
