Builders make inroads on home inventory shortfall

With the residential real estate market white hot and inventory levels at historical lows, builders are under the gun, with prospective homeowners eager for construction firms to finish so that they can buy. Thanks to their devoted efforts and an uptick in recruiting, developers are slowly but surely getting supply levels back up to par.

"Townhouse starts rose 7 percent from last year."

Over the past year - specifically March 2017 to March 2018 - groundbreakings on townhouses equaled 105,000, according to newly reviewed Census data by the National Association of Home Builders. That's a 7 percent increase when contrasted with the corresponding 12-month period a year earlier.

Robert Dietz, NAHB chief economist, noted residential developers recognize the demand for townhouses and are devoting their efforts to satisfying what buyers want. Among housing starts, townhouses currently command a market share of 12.3 percent, which Dietz anticipates will grow larger.

"I expect future gains in the share as townhouses are a useful bridge from rentership from homeownership for younger prospective home buyers in high cost markets, among other market opportunities," Dietz explained.

3.6 months worth of supply
Summer is one of the most popular times of the year for real estate, and builders are hard at work to give those in the market as many options as possible. They have a lot of work ahead of them, though, as the total housing inventory as of March 31 was 1.6 million existing homes, according to the latest figures from the NAR. Not only is that total 7 percent below what it was this time last year, it's the lowest housing supply level in more over 30 years, the equivalent of 3.6 months at the current rate in which people are buying.

Danielle Hale, chief economist, noted that the good news for buyers is construction teams and sellers are shoring up a once-depleted market rather quickly.

"We are starting to see new listings grow in recent months," Hale explained. "The inventory shortage isn't over, it took us years to get into an inventory rut, so it's going to take us years to get out of it, but we do see signs of a turnaround."

In other words, developers still need skilled laborers to even out the market that still skews toward sellers.

"Construction employment is higher in the West."

The uptick in hiring has enabled builders to make some headway on the scarcity of property, particularly in the West, where limited inventory relative to demand has sent asking prices skyward. For instance, in Montana, about 20,600 residents are employed in the home building industry, according to NAHB estimates. Other states where home building employment is high are Utah, Nevada, South Dakota and Colorado.

Builders highly optimistic about conditions
Improved conditions on the hiring and building fronts - due to intense demand - have builders in good spirits. In May, builder confidence reached 70 on the NAHB's Housing Market Index, which gauges builder sentiment. Any number higher than 50 is an indication developers are optimistic about how things are going.

"Tight housing inventory, employment gains and demographic tailwinds should continue to boost demand for newly-built single-family homes," Dietz explained. "With these fundamentals in place, the housing market should improve at a steady, gradual pace in the months ahead."

Bottom line? If there's ever been a good time to be in the building business, it's right now.

Builders are shoring up inventory as homebuying demand continues.