Despite a cooling housing market, existing-home inventories have remained at near-record lows, pushing homebuyers into the new-home market. In March 2023, there were just 970,000 existing homes on the market, down 42% from 2019 levels. This scarcity extends across the country, with inventories down in nearly all major markets, according to Harvard’s Joint Center for Housing Studies.
Meanwhile, newly built homes account for nearly half of all single-family homes available for sale—the highest level in four decades. To entice buyers, a growing number of home builders are offering incentives such as interest rate buydowns. Roughly 30% of home builders reported increased use of interest rate buydowns in Q2 2023, according to a survey by John Burns Real Estate Consulting.
Use of these interest rate incentives and the dearth of competition from existing sellers are two reasons homebuilders remain optimistic, despite ongoing affordability challenges and persistently higher mortgage rates. Through August, the National Association of Home Builders’ Housing Market Index remained above the recent lows experienced at the end of 2022. Single-family housing starts have also strengthened in the summer months. In any case, more homebuilding is needed not only in the short term to provide potential homebuyers with more options, but an increase in construction is also crucial to address the widespread supply shortages that have contributed to the unprecedented rise in home prices over the past few years.