Local builders are looking forward to showcasing their latest models later this month during The Times “Fall Home Tour.” Builder models including available new construction will be open to tour Friday through Sunday September 27-29 from noon to 4 p.m. each day.
As builders continue working to meet buyer demand, spec homes (available brand new homes in various stages of construction for people who want or need to move sooner than the time frame for building from scratch allows) are becoming more of a rarity.
According to the latest housing data from the National Association of Home Builders (NAHB), completed new homes on the market hit a 40-year record low in June with just 35,000 available. In comparison, the average from 1993 to 2003 was 2.5 times that level at 89,000.
As builders reduced the inventory of completed homes, new sales were primarily made-to-order, generated from buyer demand – not builder speculation.
Last week, NAHB chief economist David Crowe examined the shift in new home sales, from completed homes in inventory to homes still under construction, and homes not-yet-started.
In his “Eye on Housing” report, Crowe explained how the drop in spec home construction has as much to do with modern buyers as housing market conditions and conservative business practices.
“Eight-in-ten new home buyers already own a home and have often refined their choices to the point where the current inventory does not fit their needs,” he began. “A completed home does not allow for individual choices in upgrades, finishes and colors.”
Plus, as more prospective buyers value customization, tighter lending practices have made it increasingly difficult for builders to start a job without a buyer on board.
“Builders continue to meet resistance at traditional sources of credit so one way around lenders’ reluctance is to couple the loan application with a signed contract or to have the buyer obtain a construction-to-permanent financing loan based on the purchaser’s credit,” he added. “The use of construction-to-perm loans has increased from one-fifth of the market in 2010 to one-third in the second quarter 2013.”
The shift has been particularly dramatic over the recent cycle. Completed homes were half the sales in 2008 as sales slowed but inventory kept building. The average since 1963 is 36 percent - the level reached in 2012 – but it fell to 29 percent by mid-2013.
On the other hand, homes under construction comprised less than one-quarter of homes sold in 2008 but now make up more than one-third of sales. Homes sold but not-yet-started comprised 21 percent of sales in 2008 compared to an historic average of 26 percent. That share rose to 31 percent in 2012 and to 37 percent by mid-2013.
From just after the 1973-75 recession until the boom of the mid-2000s, the share of homes sold that were under construction averaged 38 percent while the share sold completed took a long term decline from 40 to 25 percent. Builders have made up for that by selling before a home is started.
This year’s Fall Home Tour is truly a unique opportunity to see what’s new in our area. Look for complete details starting September 21st.