Builders Plan to Put Emphasis on Entry-Level Housing Market

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Low inventory levels in the housing market have created continuing issues for the residential real estate market, with interested homebuyers facing competition and rising costs. In an effort to ease shortages, builders are planning to put emphasis on the entry-level housing market, as well as march forward with townhome, condominium, and overall single-family home new construction projects.

Builders are aware that inventory levels need to increase and that the demand is there. However, they have been apprehensive to work on many projects due to increasing land and regulatory costs that have made building homes, particularly entry-level homes, less lucrative to work on. Regulation costs have increased and those rising costs have affected both builders and homebuyers. Still, a growing number of builders are aiming to find a way to increase the level of new home construction for 2017.

According to HIVE magazine, several of the largest of the home construction companies are aiming to focus a bit more on the entry-level housing market this year:

R. Horton has been offering Express Homes to expand its reach into the entry-level market, and 27 percent of homes they sold in 2016 were from its Express Homes sector.

  • Lennar is also targeting the entry-level home market with greater entry-level homes and floor plan options. The company is aiming to focus more than a quarter of its sales on that sector in 2017.
  • Pulte closed close to 30 percent of homes in 2016 for first-time buyers.
  • Meritage is aiming to reach 40 percent of sale closings to entry-level buyers for 2017.

A large number of entry-level housing buyers are millennials. Their incomes are increasing, therefore making homeownership a more viable option. The number of available homes under 1,800 square feet has decreased to a low 16 percent, according to a recent report by Drew Reading, U.S. homebuilding analyst at Bloomberg Intelligence. Builders see this gap that needs to be filled and they are eager to do their best to fill it.

Last year, the National Association of Home Builders projected 1.16 million total housing starts in 2016, which had increased approximately 5 percent from the prior year. Now, NAHB is predicting a 10 increase in single-family production for 2017 and a 12 percent rise for 2018.

An increase in the construction of homes is expected as a growing economy, solid job growth, wage gains, rising household formation, and increased demand are all forecasted for 2017. While mortgage rate increases could soften demand, stronger wage gains and job growth are expected to offset the rate increases, making it a great time to buy a home for a lot of first time homebuyers aiming to enter the market, as well as current homeowners aiming to upgrade or purchase a second home or investment property.