In a recent Eye on Housing blog entry, NAHB’s economists describe a significant shift in the marketplace whereby greater numbers of buyers are purchasing homes that are still under construction or not yet started versus newly completed homes that are part of a builder’s inventory.
The experts attribute this emerging trend to several factors, including, for example, smaller inventories of completed homes (which have limited buyers’ choices in that area) and also builder credit constraints that have led to a surge in construction-to-permanent financing. In any case, our economists note that the recent shift has been quite dramatic.
Whereas completed homes were half of all new-home sales in 2008, by mid-2013, that average had fallen to just 29 percent. In the same period, the share of homes sold but not yet started went from 21 percent of sales to 37 percent and the share of homes sold that were under construction went from less than a quarter of the total to more than one-third currently.
One likely explanation for what seems to be a long-term trend in favor of sales of unfinished homes is the rise in concentration of larger building companies, which can hold an inventory of models and available lots for buyers to choose from without having to risk building ready-to-occupy homes that might not fit buyers’ preferences.