New builds are a big part of the emerging real estate landscape. In fact, more than one third of single-family homes for sale right now are considered new construction, according to Redfin real estate firm. This is why our blog post this month aims to give you the facts and insights you need to understand what’s happening and what it means for you and your clients.
We consulted with Kathy Austen of Fidelity National Financial, and her team, to learn more about how real estate professionals can help their clients navigate the new construction world.
Starting with Stats
- As of the fourth quarter of 2021, inventory of existing homes fell 14.2% from the prior year and there was a record low of only 1.8 months’ supply
- However, for new homes there was a 6-month supply and inventory was up 34.8%
- Additionally, in that fourth quarter, nearly 40% of homes for sale in Minneapolis were new builds*
- Last year, homebuilding reached a 16-year high and material costs for these homes hit a record increase with the median price to build a home at $466,900.00
Helping a client who is considering new construction
While the housing shortage remains, new builds may seem like the solution to a client looking to sell their current home. However, builders are facing their own issues in catching up to the demand. There are delays in shipping materials and price increases (up 15% in 2021). On top of that there are supply chain issues, labor shortages, lot shortages and regulatory requirements to overcome.
Be sure to educate your client, advocate on their behalf and get the honest answers they need from the builder. If your client ultimately decides to build, take the time to truly understand and educate them on M.S.A. chapter 514, their rights and the contractors/sub-contractors rights. For more information, visit the website of the MN attorney general on home building and remodeling.
In addition, some excited clients may want to get started on construction right away, but be sure to let your client know that they should not start any improvements on the land or lot before their new construction loan mortgage is recorded. Signs that mark that definition of construction commencing, includes items you would not think of like tree and brush removal.
“If we find any visible improvements on the land, a separate process is triggered which will require extensive additional documentation and could cause delays for the client,” says Austen.
What this all means
There’s a lot of predictions out there about what could happen in the housing market, but what we do know for sure is that this current climate of shortages and high building costs is making it difficult for first time-buyers.
“Higher mortgage interest rates and construction costs will cause a decline in housing affordability which will affect the home building market throughout 2022,” says Austen. “Given the limited supply and strong demand in both new and resale of existing homes, along with increasing home prices and mortgage interest rates, the entry-level buyer will continue to struggle to purchase a home.”
Your biggest challenge as a real estate professional right now, might just be to help that first-time buyer understand the current climate, so they can overcome the obstacles to get into their first home.