As the housing market continues to evolve, recent data sheds light on the trends that are shaping the industry. Nick Gerli, a real estate analyst and CEO of Reventure Consulting and Reventure App, has provided insights into these trends through a series of tweets. One of the notable observations is the decrease in the square footage of new single-family homes under construction. In 2023, the average size was 2,179 square feet, which represents a 4% decline from the previous year. This reduction in size is one of the factors contributing to a 20% drop in the median sale price, a significant shift from the mid-2010s.
However, the decrease in home size is just one piece of the puzzle. Builders are increasingly resorting to mortgage rate buydowns to attract buyers, a strategy that underscores a broader decline in the market. Gerli advises investors and homebuyers to exercise caution in areas with high activity from builders, as these regions might face further downward pressure on prices. This is particularly relevant in counties with extensive homebuilding, where the market dynamics could lead to a surplus of inventory and a subsequent drop in property values.
The situation is especially concerning in states like Florida, North Carolina, Texas, Arizona, and Idaho. These areas are witnessing a surge in permit pulling by builders, despite a noticeable decrease in demand and a growing inventory. Tennessee, for instance, is experiencing a level of homebuilding reminiscent of the mid-2000s, which could lead to an even larger inventory in the coming months. This scenario is alarming for both prices and rents, which are already showing signs of decline.
For those looking to invest or purchase a home, understanding the exposure to these market fluctuations is crucial. Gerli recommends utilizing resources like the Reventure App to research building permit rates at the county, metro, and state levels. Such tools can provide valuable insights into the trends that are shaping the real estate landscape.
In comparing the current downturn to the one experienced in 2008, Gerli highlights a stark contrast. Prices have already fallen by 19% just 16 months into the current downturn, whereas in the previous downturn, prices bottomed out at a 22% decline after 43 months. This rapid decline indicates that builders are adopting a more aggressive approach in the current market.
The real estate market is undergoing significant changes, with shrinking home sizes, aggressive builder strategies, and fluctuating prices. As the landscape continues to shift, staying informed and cautious will be key for those looking to navigate the complexities of the housing market.
