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Construction of new homes has slowed
It isn’t surprising that new home construction has slowed. According to a poll by the National Association of Home Builders, home builders’ confidence in the market for new single-family homes dropped to its lowest level since June 2020. The findings reflect the effects of high inflation and slow economic growth, which, coupled with high home prices, make it difficult for many Americans to buy.
Low mortgage rates during the coronavirus pandemic sparked a sharp increase in home prices, which by March 2022 had risen 20.6% from the year before. It has been more than 35 years since year-to-year home prices have changed this much, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. Mortgage rates have also jumped below 3% to more than 6% as the Federal Reserve fights inflation. Builders fear that with all of these challenges, interested homeowners won’t be able to purchase newly built homes.
Home construction employment plateaued after rebounding from the 2020 low
According to the Home Builders Institute, a lack of skilled labor is holding back additional home construction. Construction in late 2020 helped lead the recovery of an economy battered by the pandemic, but the number of homes built lagged behind sales—a situation worsened by supply-chain delays. To add to the supply, more workers must be recruited and trained, the HBI says. Some additional 740,000 workers are needed each year through 2024 to meet demand.
Construction job openings shrink
The number of job openings in the construction industry plummeted in June 2022. There were 71,000 fewer openings compared to the month before, according to the Bureau of Labor Statistics’ monthly Job Opening and Labor Turnover Survey. Construction officials attributed the drop to rising interest rates and growing pessimism about the market. There were 334,000 job openings throughout the industry in June, which was still 13,000 more than in June 2021.
Construction workers are also quitting their jobs faster than being laid off or let go—a trend that has existed for sixteen consecutive months. Overall on a year-over-year basis, the construction industry still added 311,000 jobs, a 4.2% increase.
Contract cancellations on new homes were lower in 2021 but have since gone up
The rate of cancellations of contracts for new homes was low, below 10% for the 13 months leading up to August 2021, according to the Burns Home Builder Survey. The report said only four builders had reported cancellations of 35% or more. Buyers had little incentive to cancel because they faced few existing homes for sale and long waits for new homes. Builders could quickly sell homes at higher prices.
According to Redfin, the highest rate of cancellations on existing homes rose in June 2022 to about 15% since the beginning of the COVID-19 pandemic. Higher interest rates and rising inflation were likely to blame for this increase.
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Written by: Aine Givens