Pending new home sales up 20% last several months, but flat overall

MarketNsight Presents Solutions to Increase New Home SalesMarketNsight recently hosted its December MarketWatch Atlanta event giving a state of the market for 2019 and predictions for the New Year. MarketNsight and ViaSearch President John Hunt reiterated that Atlanta is an incredibly price-sensitive market and that as interest rates have dropped, new home sales have increased.

Hunt highlighted that pending Atlanta new home sales are up 20% the last three or four months, and closings have followed.

“This is good news for the new home market, but the market is still moderating, and we need to find ways to provide the product buyers want, where they want it, at prices they can afford” Hunt said.

Atlanta is down 2% year-over-year on permits, but Hunt is optimistic that we may make it back to even by the end of the year.

“What if we have found a new normal in Atlanta? Maybe the new normal is to build and sell 25,000 to 26,000 homes a year, not the 50,000 to 60,000 we sold at our peak,” Hunt said. “The top 10 cities in the U.S. are all trending the same.

“Phoenix, Austin and Tampa have not gone negative, but all others have. It is really simple; cities that can produce a home for less than $300,000 will win.”

Hunt suggests that solutions can come from a variety of sources including single-family rentals, missing middle product, accessory dwelling units and micro-units.

Single-family rentals now account for 5% of all new homes built in the U.S. and it is growing relatively quickly. Some traditional home builders are now looking to single-family rental as a way to build and sell more homes. The key is making sure these homes work two ways: as a home purchase it must appraise for the lender/investor and as a rental, it must be competitively priced to what a renter would pay monthly in rent to similar square footage.

Missing middle housing is a hybrid of for sale and for rent. These multi-unit housing types including duplexes, fourplexes, bungalow courts and mansions are found throughout most walkable 1940s neighborhoods. These homes are often integrated into blocks with primarily single-family homes and provide diverse housing choices. The addition of the missing middle helps to generate enough density to support transit and locally serving amenities such as restaurants and retail.

“Missing middle is happening around the country including metro Atlanta, and this type of housing is the perfect bridge to the millennials,” Hunt said. “But for it to be more effective in reaching this market, we need more of these types of homes and zoning that allows for it.”

Accessory dwelling units and micro units prove that millennials don’t care about price per square foot. The apartment industry has shown the building industry the way with rents for 500-square-foot apartments at or above $1,500 a month in most cities. Home builders are going to start competing by building stacked flats and other products that are smaller and located where homebuyers want to be.

“We have a shortage of anything less than 2,000 square feet,” Hunt said. “We need more 1,750-, 1,500-, 1,250- and 950-square-foot product. The market wants it, but the City Council often says no.

“Our zoning is based on how the world looked 15-to-20 years ago when the baby boomers were having kids as the largest demographic. Today, both millennials and boomers are converging on the same product in the middle-square-footage ranges and it doesn’t exist.

“Building smaller homes will not bring our home values down,” Hunt said. “It is price-per-square-foot and appraisals that matter. You would not compare a 4,000-square-foot home to a 2,500 square foot home. Buyers are willing to pay more per square foot for smaller homes than the bigger ones.

“We will close 2019 on a strong note,” Hunt said. “The under-contract trend is up for new construction, and it is going to drag closings with it.”

According to Hunt, early November data shows just as many under contracts for the first half of November 2019 as all of November the previous year. Closings and permits are going up to positive for November.

As for 2020, Hunt is forecasting continued moderation of new home sales growth and estimates we will be up 2% for new home permits. Because we are at the 200-year average for interest rates, Hunt expects they will be about the same in the New Year.

MarketNSight is focused on helping home builders and developers make smart decisions related to purchasing land and pricing product for new home sales. Its groundbreaking Feasibility Matrix® systemizes the decision-making process and creates a one-stop-shop for gauging new home community feasibility including ranking by builder and subdivision and developed lot and raw land sales.

To learn more or to schedule a demonstration, visit www.MarketNsight.com.

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