Spring is here—and with it comes new leaves, blooming flowers, and the entry to peak real estate season. Traditionally, anyway. It’s long been the norm for inventory to peak as we enter the spring and summer months, but as we all know, the past two years of real estate have been anything but traditional. This is just one of many things that have placed additional pressure on the new construction market.
As buyers look for a way to circumvent bidding wars and inventory challenges—not to mention, find a home they can love for years (not just happen to get a contract on), new construction becomes ever more lucrative. However, as with all things, inflation is leaving its mark on prices. This, and other challenges, like raw material, labor shortages, and interest rates, have buyers wondering what’s to come—and whether owning their own home is possible. Here, we’ll review some of these challenges and attempt to discern what lies ahead.
Interest rates
A minimal jump in interest rate may seem small, but when you’re dealing with hundreds of thousands of dollars and looking at a load that lasts 30 years, that additional percentage point adds up quickly.
A recent Washington Post article explored the impact of higher interest rates on the housing market as a whole in more detail. As it relates to new construction, many experts predict higher interest rates, which now reach above 5 percent, will affect demand, which will, in turn, affect supply. With the existing housing shortage, an increasing number of buyers have started to look to new construction as a solution. There are still many communities in development throughout the DMV, but if the economists are correct, this prediction will prove less than ideal.
Labor and materials
Builders and buyers have deeply felt the impacts of supply chain issues and labor shortages. Some builders are delaying presales of homes because they can’t reliably predict how much it will cost to build and how long it will take. While this has been the case for more than a year now, and though some challenges are likely to persist, there are some optimistic signs of improved supply chain reliability.
Builder pricing
Builder pricing is complex and a result of many market indicators. While the market remains challenging, the shortage remains, which allows builders to have some level of confidence that homes will find buyers. Additionally, lumber prices are trending downward, which could offset some costs for builders and buyers alike. While it’s unlikely pricing will downturn significantly, hopes are that they will stabilize from the recent spikes. As a whole, the market remains challenging for new home buyers, but the new construction market remains strong—and for many, the most promising way to find a new home. Buying a new home will continue to come with some challenges, like interest rates, but indications are good that supply chain and other related issues will lessen and provide a smoother course.
