New Challenges For New Home Construction

The housing market began with a bang in 2021 but with the demand for new homes came some uncertain challenges. Builder's confidence is strong with such buyer's high demand. The shortage in home inventory and low mortgage rates coupled with buyer's high interest and a new generation of buyers hitting their peak home-buying years makes for a great time for new home construction.

Zillow reported in their New Construction Consumer Housing Trends Report 2020 that 40% of those buyers who purchased a new construction build, were only interested in buying a new construction home. On the negative side, these new construction buyers hit more obstacles this year than in the past.

Close to half (45%) new construction buyers are under 40 years of age and 70% of new construction home buyers are first-time home purchasers. This shift in demographics has changed what a first-time home buyer might find challenging and what this demographic might struggle with.

This young generation struggled with several top challenges during the purchasing process. A fair price for a home seems to be a challenge. It was sighted that 30% of new construction buyers found that determining a fair price for a home was hard in 2019 and this rose to 37% in 2020. Many blame COVID-19 for this reason. The transaction of coordinating the build of a new home with the sale of their current home was also hard to handle for 36% of new construction home buyers.

The relationship between the sales agent and the home builder has become extremely important. In 2019 84% of new construction home buyers relied on their sales agent to communicate with the builder. In 2020 this rose to 90% which was a 17 point increase over last year.

Challenges can be overcome with help from a Realtor. A Realtor can help a buyer with pricing and financing. They can also be a great mediator between the buyer and home builder. A professional sales agent will help both the building process and purchasing process become an easy streamlined process.

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Three Trends That Changed in 2020 When It Comes to What New Construction Buyers Want

 Zillow Consumer Housing Trends Report 2020 data shows some changes from what buyers want in a new construction home. More buyers are purchasing new construction homes now more than last year. The survey revealed that 40% of new construction buyers that were surveyed only were interested in new construction homes. Here is what has changed in a new construction buyer's mindset in 2020.

Smaller, less expensive options gaining appeal

Those new construction buyers surveyed showed that they are choosing smaller homes. A small home is considered a home with less than 1,000 square feet. In 2020, 9% of new construction buyers purchased a small home which is 6 percentage points higher than in 2019.

This change might have stemmed from more houses being built in urban areas or home builders swapping size for more upgraded options. One definite catalyst is the price buyers want to pay for a home. In 2019 9% of new construction buyers paid less than $100,000 for a new construction home and in 2020 this jumped to 19%. The growth in households buying less expensive new construction homes coincides with a 10-point drop in the share of buyers who pay between $200,000 and $299,000 — 21% of NC home purchases fell in that range in the 2020 survey, compared to 31% in 2019.

A shift in home feature preferences

In 2020 many homebuyers are still looking for many of the same top features as in 2019 such as air conditioning, the preferred number of bedrooms and bathrooms and preferred floor plans. There were some changes to new construction buyers' preferences in 2020. Buyers were looking for rental income, smart technology and space for cars.

Close to 32% of new construction buyers are looking for a home that will generate rental income. Those that only wanted to rent a portion of their home (home-sharing) grew to 27% in 2020.

Nowadays smart technology is a big part of society in many aspects. New construction home buyers have placed importance on smart technology in their homes. In fact, 45% of new construction home buyers felt that having smart home capabilities was extremely important. Homebuyers want devices that provide everything from security to temperature control.

Having a place for a car has become a must in 2020. Seventy-four percent of new construction buyers say that off-street parking or a garage is one of the top must-haves and 67% said a parking space is also on the list. These items came in 6 points higher in 2020 than reflected in 2019's data. As mentioned before, urban new construction is on the rise and there is always a scarcity of parking in the city.

Top reason for buying new construction

In 2020 new construction home buyers place the top reason for purchasing a new construction home is for the free builder upgrades. In the survey, 14% of new construction buyers said free builder upgrades swayed their decision to purchase new construction. Still in the top reasons were desirable location at 39%, appealing home features at 38% and everything new and never used at 37%. Buyers want to have the ability to customize features on their new home.

If you are in the market for a home, consider a new construction home. Always use a Realtor who can help you with the building process as well as the purchasing of your new home.

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Ways Builders Are Increasing Energy Efficiency

Home Energy Rating System (HERS) Index is the standard that is used in the industry to measure a home’s energy efficiency. This system is nationally recognized and is used across the country when inspecting and calculating a home’s energy performance. Homebuilders today are finding ways to make sure the homes they are building have low HERS scores.

HERS Index standard scores are determined using energy modeling software. The most common HERS Index score in 2019 was 58 (the standard ranged was between 45 and 80). When building a

home, the lower the score, the more energy-efficient the home is. Here are some useful tools builders are using to make sure their new construction homes are energy efficient.

Builders are using specific heating equipment. In recent studies, ground source heat pumps had the lowest score ranges. Air source heat pumps had the best scores overall which ranged between -20 and 5. Traditional furnaces had high scores ranging from 25 to 70 and electric resistance heating scored the highest ranging 75 or higher.

Heating and cooling efficiency also plays a part. Seasonal Energy Ratios (SEERS), as well as the Annual Fuel Utilization Efficiency (AFUE), play a big part. Homes that scored lower on the HERS index from 25 to 40 had SEER ratings of 17-24. Homes with a SEER around 14 scored a high HERS index score of 45 and above. For an Annual Fuel Utilization Efficiency in the mid-80s, the HERS score ranged from 70 – 75. For a lower HERS score (below 55) the AFUE will need to be 90 and above.

Another tool to look at is the mechanical ventilation type. To achieve a HERS score of 40 and below, most homes must only have Energy Recovery Ventilators (ERVs) and Heat Recovery Ventilators (HRVs). Homes with HERS scores that range between 40 and 50 had exhaust only and those with HERS scores between 56 and 80 had air cyclers only.

Solar photovoltaics (PV) is a specific technology that changes sunlight into direct current electricity by using semiconductors. How it works is when the sun hits the semiconductor (within the PV cell) electrons are freed and the form an electric current.  Homes with PV had a HERS score of 30 and below. Homes without the solar photovoltaics had a Home Energy Rating System Index score of 40 and higher.

Homebuilders have vast resources when it comes to building an energy-efficient home. When a builder combines multiple efficient products with sound building science principles they will have a greater potential for building a great energy-efficient home.

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2020 Is The Year For Millennial Home Buyers

“After a decade of cocooning, millennials want to buy homes that represent value, which is in keeping with the way they shop for everything else,” CNBC’s Jim Cramer said. “The delay in … homebuying is over, the spending is just beginning.”

The year 2020 will bring a new era to dominate the housing market. According to CNBC.com, ” Millennials are expected to be the largest single cohort of homebuyers in 2020.”

“People who have jobs and feel confident in the future are taking advantage of affordable luxury

wherever they can find it,” Cramer said. “I think that gives you great insight into the behavior of millennials, or at least the millennials who have money to spend.”

This generation, born between 1981 and 1997, make up around 33% of the homebuyers which is up from 20% just five years ago.

“In fiscal year 2019 over 20% of our closings had one purchaser 35 years old or under,” CEO of Toll Brothers Doug Yearley said.

Toll Brothers is the nation’s leading builder of luxury homes. The company builds in 23 states and the District of Columbia. The company had a strong fourth quarter in 2019. They reported earning $1.41 per share on revenue of $2.38 billion. Toll Brothers sold 2,672 units in home sales that totaled $2.29 billion in a three-month period.

Toll Brothers is focusing its affordable luxury communities on move-up, active adult and millennial

buyers. The older more affluent millennials have been the biggest factor in this decision.
“This market is strong and demographics suggest it will grow over the next decade as millennials mature,” Yearley said.

Another big homebuilder, Taylor Morrision, agrees that millenials are on an upward trend when it comes to homebuying. The homebuilder, which builds in nine states among the south, southwest and midwest regions, reports that a good majority of their homebuyers are millennials.

“People who have jobs and feel confident in the future are taking advantage of affordable luxury wherever they can find it,” Cramer said. “I think that gives you great insight into the behavior of millennials, or at least the millennials who have money to spend.”

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New Home Buyers Have More Selection in New Homes

Even though the housing market has been making incredible strides in its recovery since its low in 2008, one of the major obstacles that has been holding the sale of real estate back is the lack of supply for the growing demand of home buyers.  New home buyers especially have been stymied by a lack of inventory from local builders.  Builders themselves have been frustrated by the tightened funding requirements for construction loans from banks and lenders, so there is been a “stalemate” of sorts going on in the new home industry.

However, good news is on the horizon for real estate because single-family home starts have been on the rise and holding steady over most of the months of 2015.  Single-family home starts remained steady from August to September with 740,000 starts nationwide for both months.  Overall, housing starts (including multi-family housing) increased by 6.5% and reached the 1.2 million mark – the highest its been since October, 2007.

From a yearly perspective, quarter-over-quarter, single-family home starts are up 5.7% 3rd quarter from second quarter with a total of 746,000 home starts.  The numbers year-over-year show that single-family home starts are up 11% compared to 2014.

Another strong sign of new home real estate recovering is the number of housing permits for single-family home starts.  The number of permits for single-family homes went up 9.4% year-over-year and also remained unchanged compared to the previous month of August from September, 2015. Trends also show that money of the new home purchases are coming from “contingency sales” where a home buyer has a house to sell and wants to build or buy new which is excellent news for new home builders.

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