Newly-built homes are out of reach for buyers in the lower one-fourth of the market, according to an analysis of recent Census data and surveys by the National Association of Home Builder (NAHB).
With inventory of homes at historically low levels (about 2.5 months of supply nationally), and prices for new homes escalating, low-income buyers are forced to look exclusively at previously owned homes.
In its “What Home Buyers Really Want” report, NAHB reported survey respondents expect to pay a median price of about $265,000. Half said they were looking to pay $250,000 to $1 million and about 25% indicated they were looking to pay less than $150,000.
Data from the HUD/Census Bureau Survey of Construction reveals the median price of single-family homes started in 2020 and built for sale was $336,000, with the vast majority (79 percent) priced between $250,000 and $1 million. Virtually none had asking prices under $150,000.
Comparing what buyers expect to pay (a median of $264,634) with the median price of 2020 single-family starts ($336,000) reveals a gap of more than $71,000.
The situation is likely to be worse this year, according to NAHB since the median price of a new home in May 2021 jumped 18 percent from a year earlier, at $374,000.
“In addition to the 25 percent of buyers looking to pay under $150,000, it is likely that builders in many parts of the country are now unable to accommodate a substantial share of the 22 percent looking to pay somewhere between $150,000 and $250,000,” wrote Paul Emrath, Ph.D., the association’s vice president for survey and housing policy research. “The reasons are not mysterious,” he added.
Among reasons cited for the price hikes were:
- Rising lumber costs. The year-over-year increase added $35,000 to the price of an average new home.
- Material costs in general jumped 26 percent compared to a year ago.
- Shortages of labor and materials. (The number of open construction jobs increased to 357,000 in April.)
- Costs associated with regulations. NAHB estimates those expenses account for more than $93,000 of the price of an average new home.
House-hunters at the lower end of the spectrum can also expect to experience rising prices for existing homes, fueled in part by the sparse inventory leading to competitive bidding.
NAHB reported the median sales price for existing homes in May was $350,300. That’s up 23.6% from the same month a year and marked the 111th consecutive month of year-over-year increases.