The number of homes for sale that haven’t even been built yet now sits at its highest level on record. Here’s what home buyers need to know about that trend
So you’ve bought a house, but it hasn’t been built yet? While it sounds strange, this isn’t a new problem to have – but it is becoming a more common situation, as housing demand is up and supply is down. (See the lowest mortgage rates you might qualify for here.)
According to the latest data from the U.S. Census Bureau, the number of new homes available for sale increased by 3.8% in March to 407,000 homes. More than half of this increase was driven by homes for sale for which builders haven’t even started construction. That number now sits at its highest level since the government began collecting this data in 1999 – 105,000 in March, compared to 97,000 the previous month, and 77,000 the same month last year, according to preliminary seasonally adjusted numbers.
“While we expect higher mortgage rates to increasingly weigh on sales, demand appears to still be outpacing the speed at which homebuilders can complete construction, with many homebuilders continuing to report that they are limiting the number of orders being accepted,” wrote Mark Palim, deputy chief economist at Fannie Mae, in a statement.
Though builders are struggling to keep up with demand, sales keep steady each month, as buyers are willing to invest in a new construction home now rather than wait to see what the market will do later. “These are signals that people expect things to get more unaffordable,” Hamilton Fout, vice president of economic and strategic research at Fannie Mae, tells MarketWatch Picks. “People are looking at what is available to buy because they think if they don’t buy now, they’ll pay more later.”
If you’re interested in buying a home now and are or have already bought a home that has not been built yet, here are some things to consider
1. Get to know the entire team
It’s understandable that when you’ve bought a new home, the only thing on your mind is getting into it so you can finally decorate and make it your own. But it’s important not only to remain patient but to make sure that you are getting a home to your specifications with no shortcuts taken. Go on-site and meet the team that is on the ground managing the construction of your new home. Get to know the project manager and the super. These relationships will only help you have candid conversations about the build as it progresses.
2. Have a nest egg for temporary housing, should you need it
If you are fortunate enough to have family – blood or chosen – that you can stay with while waiting for construction to complete, take advantage of the offer of free or discounted rent as long as is feasible. But keep in mind that the market is unpredictable, and even experts can’t say for certain when or if housing and rent prices may shift. If construction takes longer than expected, and you need to find alternative living arrangements, make sure you have a little nest egg for a stop-gap rental should you need it.
3. Get it inspected – twice
For new construction homes, it’s a good idea to have two inspections: first while under construction before the drywall is hung, so the framing, electrical wiring and plumbing can be properly inspected; and second, when the home is finished and before you move in. You may have to do a little extra legwork to get that first inspection done (hiring the inspector; aligning with the builder for the inspection), but work with your contractor/builder so you have peace of mind when your home is done.
4. Do your own inspection
There is nothing wrong with you walking around the property as it’s being built and noting any visual red flags. You may not be an expert, but if something looks wrong to you, it’s worth asking the builder about. After all, it’s your home.
5. Create a detailed final punch list
Before closing, make sure the developer does a final walk-through of the property with you so you can make a punch list of to-do items. This punch list must be completed before closing, and it cannot be added to afterward, so make sure it is as detailed as possible. You may also hire an expert of your own choosing to do the walk-through with you, as this is your last chance to get everything right before closing.
But should you buy now? Pros say, don’t let the pressure push you into buying when you’re not ready. “The really strong rental growth numbers make it very attractive for investors to buy property,” Fout said. “But as mortgages rise, folks may pull back from the market, at which point you might find it relatively easier to buy.”