Family income growth, mortgage rates and home prices are three forces that affect new-home demand. While rising land acquisition and development expenses and a skilled labor shortage add to construction costs and sales prices, income growth will likely offset higher prices and nudge national new-home sales higher in 2019.
The number of new home sales rose by 2 percent in 2018 compared with the prior year. Across metropolitan areas, the largest number of new home sales and the greatest increase in activity occurred in the South and West. The Houston, Dallas, Atlanta, and Phoenix metropolitan areas topped the list of new single-family building with each averaging more than 1,500 new sales per month. (Figure 1) All four of these areas have low unemployment rates and employment growth that exceeded the national gain: U.S. nonfarm payroll employment increased 1.7 percent during the year ending November 2018, compared with job growth of 4.2 percent in Phoenix, 3.7 percent in Houston, 2.6 percent in Dallas, and 2.1 percent in Atlanta. Rapid job growth has led to in-migration from other parts of the country and increased demand for new homes in these metros.
Urban areas in the South and West are also the ones experiencing the largest percentage growth in new-home demand over the last year. The fastest growing metropolitan areas are generally not the largest ones, but smaller areas that offer better affordability, good job prospects, and favorable weather. (Figure 2) As examples, the Lafayette, Louisiana and Ocala, Florida metropolitan areas had an increase of more than 40 percent in new-home sales from a year earlier; the median new-home sales price in September 2018 was $251,000 in Lafayette and $224,000 in Ocala, compared with the national median of $320,000.
Our forecast has a 3 percent rise in U.S. new home sales during 2019, placing national sales at their highest level since 2007. Most of the increase will be in the South and West, with the Houston and Dallas metropolitan areas again topping the list for new-home sales.
© 2019 CoreLogic, Inc. All rights reserved.