The ending of the first quarter of 2021 marks the one year mark for the global coronavirus pandemic. Who could have predicted we would also be in the one of the robust housing markets any of us have ever experienced? What brought about this market, we ask ourselves? Was it the extremely low interest rates? Could it be the stimulus money that was introduced into our economy? Is the work from home requirements that our workforce was forced to accommodate? We may never fully understand all the factors that got us to where we are today but everyone can agree; this is uncharted territory for the housing market, both in new construction and resale.
When looking at 19 different communities in the Des Moines metropolitan area, 61% of available home inventory is new construction. This equates to a 3.5 months of new construction supply. There are 1,031 total single family homes available in total for our community at-large. This is just a 1.2 months worth of supply, making inventory unbelievably low as we head into the second quarter of 2021. Total homes sold in Q1 was 759, with 22% of sales being new construction. This is a record-breaking number! (For detailed statistics and analysis, I invite you to view the recent presentation given at the 2021 Builder Luncheon in February.) When digging deeper into the data, we see that there are only 406 resale homes on the market in the metro as we go to press! This is historically unheard of, which brings us to the bigger topic at hand.
A very hot market with low supply has felt good, really good from a builder/developer perspective. One must consider with some concern though, what does that mean for the Des Moines metro area? Are we going to be able to provide affordable housing to our growing population? If yes, how?
The average sale price of a new construction home in 2020 was $340,000, a 1.7% decrease year over year. This is an interesting number to see, as the cost of materials increased significantly with the pandemic. The rise in home prices was felt mostly in Q4 of 2020 so when averaged with the very low prices of homes in the first three quarters, we were still able to see a decrease year over year. That said, one would expect 2021 prices to more accurately reflect the rise in the price of building materials. To illustrate that trend, today the average list price for new construction is $349,781. For more information on first quarter single family home sales, view our Q1 2020 Stats.
Affordability in housing is going to be the hot topic for the foreseeable future. Low interest rates and strong demand has been a blessing to us. Interest rates will rise again though in an attempt to slow inflation and then we will see the affordability problem front and center. All players in our industry (developers looking at land costs, lot sizes and market demand; city officials putting into place long term policy; builders deciding on product input; and more) must pay attention to the market and how every additional dollar influences our customers in a major way.
I applaud this community for the work that has been done thus far to meet buyers at prices they can afford. Cities across the metro are allowing developers to put in smaller lots to keep land prices affordable. Builders are offering smaller and more entry-level projects. (Condo and townhomes continue to be in high demand.) Throughout the coming year, we as an industry need to closely watch inventory levels, price increases and interest rates to strategically plan lot development and home permits for the second half of the year and beyond. The partnership and collaboration between developers, builders and city officials must continue in these ways and more for the market to be sustainable going forward.