The Case for Doubling Down on Home Building Even As Demand Lessens

To help solve the nation’s housing demand, Redfin has called for the government to provide greater support for homebuilding through steps such as subsidies and upzoning—even as demand pulls back—so the housing-supply hole can start to fill in and help accommodate need. 

“If there had been enough homes at the start of the pandemic, housing costs might not have skyrocketed the way they did over the past two years,” Redfin chief economist Daryl Fairweather said in prepared remarks. “Scores of buyers moving in from other parts of the country, causing inventory to dwindle and prices to surge.” 

This year has featured an interesting coming together of shrinking single-family-home supply and rising demand, prices and mortgage rates, making for a highly charged market. 

Highest-Priced Markets Home to Most Homebuilding

The 10 metros building the most single-family homes are located where home prices have skyrocketed most, Redfin reported—namely, the Sun Belt.

While homebuyer demand has started cooling, “housing supply is declining at a slower pace than it was at the peak of the pandemic and sales of new homes are down,” according to the report.

Building more homes is one of the best ways to ease the affordability crisis, Fairweather said.

Redfin said the number of homes for sale remains near all-time lows and monthly mortgage payments are near their record high, somewhat because mortgage rates have risen from roughly 3% to over 5% in recent months.

Top markets are Austin, which had 31.1 single-family building permits per 10,000 people in the first quarter, the most per capita of any major U.S. metro. 

Others include Raleigh (30.7), Jacksonville (29.2), Nashville, (26.6) and Charlotte (22.9), followed by Phoenix (22.7), Houston (22.4), Orlando (20.3), Dallas (18.5) and Las Vegas (17.2).

Homebuilder Confidence Dropping

GlobeSt recently reported that a perfect storm of negative circumstances combined to slam home builder confidence in May, according to a National Association of Home Builders report.

Affordability challenges for buyers are growing thanks to rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation.

Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, marking the fifth straight month that builder sentiment has declined and the lowest reading since June 2020.