As quarter one of 2024 comes to an end, one may think to themselves, “How am I able to successfully navigate this year, this party that is to be 2024? Should I come early and be the first person there? Do I show up fashionably late and miss the beginning?”. Maximizing opportunity, both in fun and in business, is what it is all about!
In the world of builders and developers, no one wants to miss out … ever. The overall feeling of 2024, thus far, is that uncertainty in the short term is overwhelming. The industry feels confident in what the long term housing market will bring; it is the short term that has us questioning ourselves. We need to find the sweet spot of opportunity to show up at the party when the energy is just perfect for success.
February 2024 Snapshot
Active single family homes for first quarter 2024 are up slightly from last year at a modest 2.4 month supply. (2023 was a 1.9 month supply.) This translates to 73 more active homes. Meanwhile, active listings for new construction homes were down from last year at a 5.8 month supply versus a 6.2 month supply in 2023. Progress has been made..
Overall, pending numbers almost mirror where they were a year ago. Presently, there are 1,058 pending homes with 377 of them being new construction.
New Construction Inventory
For the past decade, new construction homes have dominated the available inventory. Before the pandemic, new homes made up about 30-40% of the market with a peak at 71% from 2021 to 2023. Builders have tracked and reacted to these inventory levels in an impressive way, keeping a six-month balanced supply point. Today, we see this trend gradually leveling out. Only 57% of the current inventory belongs to new construction homes.
Looking back at 2023, the overall number of single family homes sold has not been this low since 2013. Last year, 7,718 single family homes were sold, of which 1,771 (23%) were new construction. The sales figures for these new construction homes surpassed any volume seen since tracking began in 2007 – with the exception of the pandemic years of 2020-2022.
Housing Affordability
Sales prices continue to rise but at a more typical rate. The average sale price of a single family, new home in 2023 was $447,000. This reflects a 3% increase compared to the year prior. When comparing that to the 16% increase in 2022 and the 9% increase in 2021, this shows significant stabilization in the market.
Builders, developers, and agents alike have been eagerly awaiting a drop in interest rates but uncertainty remains. In the past three years, interest rates have more than doubled. For the first time since 2007, (in 2022 and 2023) the median household income in Iowa could NOT afford the average new construction home. This is uncharted territory for those in the industry. With interest rates trending upward, the Feds put a damper on demand to intentionally slow inflation, resulting in an increased cost of living for the average homeowner.
Looking Ahead
In all 19 of the Des Moines metro communities, homes are selling despite the high interest rates. Overall, sales for 2023 were not as dire as many had feared. What is interesting is the shift in new lots developed. Last year, it was predicted that developers would pull back in 2023 and they sure did!
Only 1,979 new lots were brought to the metro in 2023. The number of permits pulled was down 10.6%. And we expect developers remain cautious heading into 2024. Keeping an eye on the supply is crucial as we lean into the future. There is still a housing shortage. Resales are locked in at historically low interest rates, giving new construction a crucial role in the market for the foreseeable future.
The market offered a brief lowering of interest rates in December, bringing a surge of pending homes. This proves that there is demand, just sitting on the sidelines. Buyers are ready but affordability is holding them back. We must look at stabilizing affordability with price adjustments, construction of smaller homes, and reduction of local regulations.
Spring is coming, which traditionally means party time for those of us who are builders and developers. Who will be ready for the festivities and jump right? Who will wait and take a more cautious approach? With no straight answer of when to arrive, one must be careful not to miss the party all together. The excitement is here. Don’t let the uncertainty get the best of you.
