High mortgage rates and a surge in existing listings shift the housing market landscape
The share of houses for sale that are newly built continued to shrink in the third quarter, according to a Redfin report.
Newly built single-family homes represented 28% of total listings, the lowest proportion seen in three years. This marks a significant shift from the record 34.4% in early 2022 and the 30.5% seen a year ago.
Several factors are driving this trend. The inventory of existing homes has grown by 22% compared to last year, partly because more homeowners are putting their properties on the market despite higher mortgage rates.
“The lock-in effect has started to ease, with people growing tired of waiting for mortgage rates to come down before selling their home and searching for a new one,” the report read.
Homebuilders have been pulling back on new projects due to persistently high mortgage rates dampening demand. Instead, many are prioritizing the sale of homes already under construction.
Building permits for single-family homes fell by 2% year-over-year in September and have dropped 23% from the 15-year high reached in early 2021. The slowdown in permits signals that the share of newly built homes could continue to decline in the near term.
Despite the reduction in new projects, sales of newly built single-family homes actually rose by 6.3% in September 2024 compared to the previous year, according to US Census data. This is largely attributed to builders offering attractive incentives, such as mortgage-rate buydowns and financial assistance for closing costs.
Redfin agents confirmed that these strategies have effectively drawn buyers who are seeking better deals amid elevated interest rates.
Read next: Pending home sales surge
While the proportion of newly built homes in the current market has dipped, it remained significantly higher than pre-pandemic levels. The share of new builds jumped from about 17% in 2019 to nearly 30% by late 2021, as builders responded to unprecedented homebuying demand fueled by low mortgage rates and the shift to remote work.
However, building activity has slowed, even as builders continue to complete projects started over the past few years.
“Looking forward, the share of inventory made up of newly built homes may fall slightly further as permits dwindle. But the share should remain higher than pre-pandemic levels because mortgage rates are likely to remain elevated, keeping the supply of existing homes from surging,” Redfin wrote.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
