June 26th, 2014
Some homebuyers are searching for a house with regal charm, while others are more interested in contemporary comforts.
Regardless of which group a consumer fits into, new home construction is good news for all buyers. Demand is currently pent up in the U.S., and there are many people engaged in bidding wars for few homes. While the U.S. Census Bureau recently reported that new housing completions went up 6.8 percent month over month and 24.8 percent year over year in May, there are still some areas in the country that are slow to build new properties.
Using American Community Survey data, the Washington Post created a heat map of the U.S. that indicated which regions have a higher concentration of older housing. These areas are more likely to have higher rent and home prices, as unmatched demand spurs appreciation. More growth is evident for the Sunbelt, which includes the Southeast and Southwest. On the other hand, the Rustbelt, which stretches north of the Great Lakes from New York to North Dakota, has more rates of older properties. A lack of new construction is also evident in parts of the Midwest, particularly around Illinois, Nebraska, Kansas and Iowa.
A juxtaposition of new and old in urban centers
Another trend noted by the Post is that large cities tend to have good mix of new construction and old buildings. This trend typically occurs with the older construction emanating from the center of metro areas while inventory gains are more evident on the periphery. Much of this is due to the fact that suburban areas have more space for expansion, thereby increasing supply and keeping prices from skyrocketing.
In Atlanta, for example, there is a lot of new housing underway, as the Post said that southern cities tend to build at faster rates than their northern counterparts. Zillow recently reported that the metro area had a 4.5 percent increase year over year for its for-sale inventory of homes priced in the middle tier, where some of the newer housing options are likely priced.
Meanwhile, in Chicago, the city center has many properties that are on the oldest extent of the scale (75 years or older). However, the age difference in the surrounding suburbs shows a noticeable difference. Zillow reported 3.2 percent and 0.2 percent year-over-year inventory growth for middle- and top-tier homes, indicating that this metro area could also be seeing new construction.
First-time buyers are still trapped by inventory problems
Consumers who are looking into their first property may want to consider areas where construction is taking off at higher rates. Although they may not be able to afford a newly built property, they can enjoy fewer bidding wars with more options available on the market, especially as buyers with more capital have more middle- and top-tier options. The bottom-tier has been showing inventory declines, and Zillow Chief Economist Stan Humphries said this could be problematic for first-time buyers who need an affordable home.
“It’s good to see overall inventory rising,” he said. “It’s likely that many would-be sellers have decided to capitalize on recent home value gains, particularly as the pace slows, and list their home for sale now in order to move into a new home while mortgage interest rates remain low. But persistent inventory constraints at the low end of the market continue to make it a tough environment for first-time and lower-income homebuyers.”
Humphries hopes that the inventory growth for the higher-priced properties will soon be evident in the lower-priced market.