With interest rates currently down from a high of 8% in 2023, and the real estate market still experiencing a shortage of existing homes inventory, new home construction accounted for nearly one-third of housing inventory in 2023, up from an average of 10%.
New construction captured about 15% of all single-family detached homes, the highest share in a decade, according to an early January 2024 piece by U.S. News and World Report. (source)
But as they say, past performance isn’t a guarantee of future results. What’s in the store for the 2024 real estate market depends on who you talk to, but listen to many experts and you’ll hear cautious optimism based on a few key indicators. We gathered a few of these predictions.
Permits for future construction reached an 18-month high
The December 2023 Commerce Report on US housing starts “showed permits for future construction of single-family housing increased 0.7% to a pace of 976,000 in November 2023, the highest level since May 2022,” according to a Reuter’s news piece. “The strength in housing starts and permits bodes well for residential investment, which rebounded in the third quarter after nine straight quarterly decreases.” (source)
Homebuilders hold a huge competitive advantage
Devyn Bachman, senior vice president of research and operations at John Burns Research and Consulting, is betting on new-home construction to remain a bright spot in the housing market for 2024. One reason is construction costs have eased since the frenzied days of 2020 and 2021.
The second reason is that homebuilders have a “significant competitive advantage” over the average home reseller. Said Bachman, homebuilders can afford to “buy down” mortgage rates – or pay a lump sum up front to reduce a buyer’s monthly payments.
You can read Bachman’s predictions and those of eight others at Business Insider: 9 Real Estate Predictions for 2024. (source)
Build-to-Rent (BTR), smaller homes will help single-family home market
According to the U.S. News and World Report piece cited above, “single-family home starts will rebound given lower mortgage rates and the rising popularity of build-to-rent homes.” A relatively new market trend, BTR homes emerged to meet a specific need: providing detached homes, often as part of a community, for long-term renters who can’t yet afford to buy. These homes are purchased and maintained by companies versus individuals.
U.S. News goes on to add that in response to higher rates, “builders focused on traditional for-sale homes are holding the line on prices by adjusting standard specifications and constructing smaller homes,” a trend that may also bode well for the 2024 real estate market.
Other trends: ADUs, renovations and additions, moving to the exburbs
Although the following trends don’t directly impact new housing starts, they bode well for the window and door industry.
The ADU – Accessory Dwelling Unit – or guest house, may be a 2024 breakout trend, according to The Plan Collection, a company selling house plans.
From their 2024 House Design Trends Report, data shows an estimated 1.5 million ADUs in the US, with over 100,000 of them built over the last year. “High home prices and interest rates propel the ADU to the forefront as a practical alternative,” according to the report authors. “Driven by the continued crisis in affordable housing, many communities have adopted zoning changes, allowing or even encouraging the construction of ADUs.” (source)
For homeowners who can’t or don’t want to move (due to sitting on low-rate mortgages, for example), renovating existing space is becoming a top priority, the report authors state. Examples include turning unfinished space over the garage into a bedroom or office or renovating the basement into a recreation or media space.
Remote work trends continue to change where people live – with more people moving from dense urban and suburban areas to what’s call the “exburbs.” Usually located at the edge of metropolitan areas, exburbs feature low density housing and a lower cost of living – while allowing WFHers the ability to commute to the office when needed.
New home buyers who have the option to work from home, according to The Plan Collection, are weighing the pros and cons of new home construction in these areas.