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Builders Press Pause on New-Home Construction as Unsold Inventory Hits Record High

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New-Construction Projects

Builders Press Pause on New-Home Construction as Unsold Inventory Hits Record High

Home builders doubled down on residential construction projects to turn a higher profit throughout the COVID-19 pandemic, but as buyer demand wavers, prices are falling in an oversupplied market

August 8, 2022
Home builder holding floor plan and hard hat while looking at lot
Image: Stock.adobe.com

Home builders ramped up new-home construction in order to satisfy seemingly insatiable demand from buyers throughout a pandemic-driven housing boom over the last several years, but as the market cools, the number of unsold homes is climbing. After battling back from a decades-old housing shortage, builders are crossing a precarious threshold into an oversupplied market, especially as cancellation rates from priced-out buyers jump to new highs. Even homebuilding giants like D.R. Horton saw cancellation rates surge beyond 20% in the fiscal third quarter ending June 30, Fortune reports.

In order to sell completed homes, many builders are now pumping the brakes on new housing starts and offering incentives to consumers. In response, sellers may be forced to lower their asking prices to turn buyers’ heads, but more price growth is expected over the coming months as a record supply of homes under construction moves into the for-sale market.

Historically speaking, house price cuts always materialize first in the new construction market. Homebuilders, who lose money for every additional day they hold onto an unsold home, are more willing to relent. It's a completely different story for homeowners: They won't give in until market forces make them. If inventory continues to rise, sellers in some markets might finally have to relent a bit.

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