Advance New-Home Purchasing Surges to 15-Year High

The number of new-construction homes purchased in October that had yet to begin construction hit a 15-year high, making up 38.5% of total new-construction homes sold. Purchases of new homes yet to begin construction help the industry in two main ways: a solid backlog of upcoming construction activity and the possibility of more inventory. Compared to 2019, this is a 10% increase and compared to April 2020, the number has doubled, according to Zillow. These advanced purchases confirm that the demand for housing remains very strong.

The growing trend of homes being bought before they’re built also speaks to homebuilders’ smart navigation of pandemic-driven uncertainty and volatility. Overall homebuilder confidence is at all-time highs, as are builders’ expectations for home sales volume in the next six months. This confidence comes despite significant constraints on building, including scarce available land, limited and costly labor and materials, and complicated bureaucratic hoops to jump through — not to mention broader uncertainty brought on by the pandemic.

As a result, builders have become more selective in the projects they take on – clearly trying to mitigate some uncertainty by only beginning to build once a firm sales order has been received, rather than building “on spec,” starting construction first and hoping to find a buyer later. This is smart given such robust, consistent homebuyer demand. Builders are also attempting to curb uncertainty by focusing more of their efforts on single-family home building, rather than on larger, often more complicated multifamily projects.

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