Put on your hard hat—the new home market is undergoing major renovations. As the largest groups of consumers in the U.S., Millennials and Baby Boomers are designing the blueprints for new home construction. Consumer demand calls for a shift in the new home market, and builders are responding.
Spring is the tell-tale time for home builders as data forecasts show market expectations for the upcoming construction season. New home sales data out this month from Census.gov shows that existing home sales dropped by almost 5% in March 2019, but economists are optimistic for new construction home sales, seeing general improvement over the past several months. New home sales have slowly but steadily risen since the industry’s low numbers reported for October 2018. The upswing is due to the introduction of lower interest rates, making new homes more affordable. In response, builders are catering toward consumer demand for slightly smaller, more affordable new homes.
Why the shift?
The slowing of new construction of large homes is a result of challenges builders have experience in recent months:
- Higher materials costs
- Labor shortages
- Higher labor costs
- Fewer buyers able to afford new homes
At the same time interest rates went up last fall, so did the cost of commonly used construction materials like diesel fuel, steel, asphalt and aluminum. Additionally, labor costs increased due to a shortage of skilled workers. Fewer buyers have been able to afford the higher-end homes typically being introduced by builders into the new home market.
Home sweet new (smaller) home
The shift in new home construction toward smaller homes is in the buyer’s favor. Builders are responding to consumer demand by constructing homes featuring:
- Smaller square footage
- More affordable price tags
- Incentives to purchase
- Outdoor living features
The American dream gets downsized
Now in their late-20s to early-30s, Millennials are just entering the housing market as they begin the family phase of their lives. Research by John Zogby, a public opinion pollster, says that Millennials prefer less costly, more moderate-sized homes and to use their money on “authentic life experiences” instead. At the same time, retiring Baby Boomers are downsizing, therefore interested in less square footage to maintain.
Smaller square footage naturally brings a smaller price tag. Instead of dropping the price, some builders offer home upgrades like wood flooring and top-of-the-line appliances as incentives to encourage buyers. Luxury vacations, car leases and home theaters are also bait on the hook.
A connection to neighbors and nature
Builders have discovered that they can save by building on smaller lots, closer to city centers. Consumers benefit by living in a new home in an area of denser population, allowing for increased opportunity for community connection and walkability. Young buyers seek areas with a high “walk score,” following the motto to “Drive less; live more.”
Also popular in new construction homes are outdoor features like porches, decks and patios. An overwhelming 92% of new homes built in 2017 included at least one of these outdoor living spaces.
What are you looking for in a new construction home?
Are you dreaming of building a new home to call your own? Now may be the time to nail down construction plans. Partner with a builder you trust and design a plan that complements your future, no matter what generation you represent.
Like you, First Financial Bank values choices. You choose the builder and we arrange your financing. With our residential construction loans, First Financial helps borrowers finance up to 95% of the total cost of their home construction projects (subject to qualification and PMI requirements). We keep the specific needs of new home construction projects in mind, offering flexible disbursements to meet construction milestones and a single, money- and time-saving closing.
Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice.