Will new construction help the housing affordability crisis?

Kristy Woodford, CEO of Holistic Home Group

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This is not a housing bubble. It’s a housing affordability crisis.

With the housing supply so low, new construction is one of the most important components in addressing the US housing affordability crisis.

Land prices are rising as builders purchase and make plans to develop it. While this will mean more supply in the months and years to come, development could continue to stay slow due to supply chain issues and other factors.

Gay Cororaton, senior economist and director for housing and commercial research at the National Association of REALTORS® (NAR), says that our current construction rate of 1.42 million new homes per year means it will take three to five years to reach a healthy supply. In May 2021, Cororaton indicated that we were three million homes short. Going into 2020, some estimates said we were as many as 4.5 million homes short of demand.

In this tight market, new construction is going to increase. If you are considering the purchase of a new build, here are few things you need to know.

1. You don’t have to work with the builder’s agent. You can find your own representation. You may find the home by walking into one of their model homes or on-site offices, but you can tell the builder’s representatives that you have your own agent.
2. You will most likely be using builder contracts in place of or in addition to other NW Multiple Listing (NWMLS) contracts. Your agent is most likely not an expert in these non-NWMLS documents so consulting an attorney to review the contracts is highly advised. This is advised even if you’re using the builder’s broker.
3. You won’t have much choice. If you are going to purchase new construction, the competition is tight, and you will have to follow their rules. These will likely include a loose closing date, and flexibility around finishes (which will be built into the contract and very necessary in these days of supply shortages). The countertop you see in the listing photos might not be the same one you get. That said, most builders should try to work with you in choosing alternative finishes. They want happy customers and positive word-of-mouth referrals. But it will be more on faith than in writing, which always makes us agents nervous.
4. You will be asked to make all or some of your earnest money non-refundable to go toward the building of the home.
5. You will be paying for upgrades (in the thousands) on top of your agreed-upon purchase price.
6. Be flexible. In this market, if you are lucky enough to win on a pre-sale, the value of the home is going to be many thousands over what you paid for it by the time you close.

Bear in mind that the purchase of a newly constructed home could pay off. Sellers reselling newer homes are one of the biggest winners in this rapidly increasing market. I just completed a home valuation for a client that purchased a home in Yelm in January 2020. They purchased the home as a presale. Comparable homes sold in the area show that he has seen a 40% increase in the value of his home in just a year and a half. That rise in value comes in above the average equity increase. 

If you’re ready to buy a newly constructed home or sell a new home you bought recently, don’t hesitate to contact me directly at 360-508-2800 or kwoodford@kw.com.

Kristy Woodford is CEO of Holistic Home Group, which is affiliated with Keller Williams South Sound. She has over ten years of experience as a broker of residential real estate in Thurston County and leads a team of realtors experienced in serving local buyers and sellers.