New Construction Slowed Down Tremendously in August. Here’s Why That’s Bad News for Home Buyers

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Home construction declined in August. Read on to see why buyers might struggle in the coming months. 

Home buyers today are struggling for a few different reasons. First, mortgages have gotten very expensive to sign. As of this writing, the average 30-year mortgage rate is 7.57%, according to Freddie Mac. Throw in elevated home prices, and a lot of buyers are running into issues with affordability.

But even if you’re able to afford to sign a loan with one of the best mortgage lenders today, finding a home you actually want to buy might be a challenge. The National Association of Realtors reports that as of August, there was only a 3.3-month supply of available homes on the market. That’s well below the four- to six-month supply of homes that’s generally needed to meet buyer demand.

Of course, it’s easy to see why there’s such little inventory. Homeowners who locked in affordable mortgages when rates plunged in 2020 and 2021 have little motivation to list their properties and move, as doing so is apt to mean locking in a rate that’s more than twice as high. As such, if you’re someone who’s looking for a home today, your best bet may be to wait for more new construction properties to hit the market.

But data from August paints an unfavorable picture. And that could get in the way of a lot of home buyers’ plans.

New construction slowed notably in August

During August, housing starts, which are a measure of new construction, fell 11.3% compared to July. The number of new units started in August was 14.8% lower than a year prior and the lowest number of starts since June 2020.

To be clear, housing starts aren’t an indicator of an immediate uptick in inventory. And the reason is simple — it takes time to build a home from the ground up.

But when housing starts increase, it’s an indication that real estate inventory has the potential to be more robust in six to 12 months, give or take. So a decline in starts in August is negative news for buyers who were hoping to see housing inventory open up in 2024.

How to deal with limited housing inventory

If you’re in the process of trying to buy a home, you may be frustrated by the fact that there are so few properties available. But one thing you may want to do is narrow down your wish list and identify three or four must-have items you can’t live without. If you find a home that checks off those boxes, you can then consider making renovations over time to create your ideal living space.

Remember, a home with an outdated kitchen could one day become a home with a modern one if you’re willing to put in the time and money. You don’t automatically want to write off a home with lime-green appliances when there’s the possibility of addressing that issue in time.

Also, you may want to consider expanding your search to different neighborhoods rather than insisting on just one. Moving a few ZIP codes over could make it possible to find a home that’s large enough to accommodate your family and offer the amenities you want.

It’s definitely not a great thing that housing starts declined in August. But with any luck, they’ll pick back up in the coming months. That could lead to a decent increase in inventory in 2024, depending on how quickly those units are built.

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