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Why Are Sales of Brand-New Homes Surging?

The U.S. Department of Commerce reported April 2016 sales of newly constructed homes.
The U.S. Department of Commerce reported April 2016 sales of newly constructed homes.

Sales of newly constructed homes spiked in April as buyers, spooked by the lack of properties on the market and rapidly rising prices, snapped them up.

About 61,000 new homes were sold in April—the highest number since July 2007. The number of sales jumped 27% over the same time a year earlier and were up 22% from March, according to the U.S. Department of Commerce’s monthly new residential construction report. The numbers were not seasonally adjusted, which means they weren’t smoothed out over a 12-month period to account for fluctuations.

“This should be the year that we see substantial increases in new-home sales,” says Jonathan Smoke, chief economist of realtor.com®. “The existing-home market is extremely tight … [so] home builders are able to come in and fill that gap.”

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That’s reflected in the fact that the overwhelming majority, nearly 70.5%, of April buyers closed on homes that hadn’t been completed yet, according to the report.

The median cost of owning a never-been-lived-in abode was also up to $321,100 in April, according to the report. That’s a 9.7% rise from a year ago and a nearly 7.8% bump from March.

The bulk of the residences sold were in the $200,000 to $399,999 range, which is geared toward homeowners looking to trade up to larger residences.

But in an encouraging sign for first-time buyers, there was an increase in the number of sales of residences going from $150,000 to $199,999. It was up nearly 42.9% to about 10,000 sales from the same time a year ago.

“It’s very good to see growth there,” Smoke says. “I don’t think the new-home market can grow a whole lot more unless builders are able to put up homes at more affordable price points.”

But only about 1,000 homes under $150,000 were sold in April—compared with 2,000 a year ago, according to the report.

More than half of the buyers who picked up the keys to their new homes were in the South, where more jobs, and therefore, more people are moving. About 34,000 of these new homes were sold in the warm-weather states, according to the report.

“We have suburban new construction [going] through the roof,” says Austin, TX–based Realtor® Mark Strüb of Strüb Residential. “You drive by a piece of land that’s probably someone’s family ranch, and the next year you drive the same stretch and it’s a few hundred homes.”

Many prospective buyers are moving to these big, new developments to avoid bidding wars on the few existing homes that are on the market elsewhere, he says. Most of his business is in existing homes, and he says he receives multiple offers on more than half of the properties he represents.

He’s seeing fewer new building go up on the outskirts of the quirky city, although developers are scrambling for whatever plots of land they can find, he says.

“They’ll get the best of what they can afford,” Strub says of buyers deciding between new or existing homes. “Some people love the charm of vintage homes, and others really prefer the modern conveniences of a brand-new home.”

The number of sales in the South was followed by the West, where about 15,000 new homes were bought in April. The region was followed by 6,000 sales in the Midwest and 5,000 in the Northeast.

The post Why Are Sales of Brand-New Homes Surging? appeared first on Real Estate News and Advice - realtor.com.


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