The housing market is on fire, and Zillow’s recent report shows that home builders are continuing to build and start houses at an unprecedented rate. Despite potential banking collapses, tighter restrictions in commercial lending, and overwhelming unaffordability, home builders are putting their money where their mouth is and constructing new homes faster than ever before.

Zillow’s report highlights some critical points demonstrating the explosive growth in homebuilding. In February 2023, housing starts increased by almost 10% from January, reaching 1.45 million. However, this number is down 18.4% from February 2022. Housing permits issued in February also increased by 13.8% from January’s level, reaching 1.52 million. However, permits are still down by 17.9% compared to a year ago. Completed homes in February increased by 12.2% from January, reaching 1.56 million. However, this number is down 12.8% from the previous year.

Despite the dip in numbers from the previous year, the current rate of new home construction is still historically high. Let’s take a closer look at the data to determine what this means for the housing market today.

Historical Data

Zillow’s report highlights that new home builders are constructing homes at a historically high rate. However, is this sustainable? Let’s take a look at some historical data to determine how new home construction has evolved over the years.

According to data from Fred Economic Data, new housing starts have increased steadily since mid-2022. The current rate of new housing starts is approaching pre-pandemic levels, although it is still not as high as the peak in April 2022.

Another key metric to consider is the monthly supply of new homes in the United States. Despite having 7.9 months of inventory (which makes it a buyer’s market), new home builders are continuing to build more homes. The current inventory of new homes is at its highest level in over a decade.

However, it’s important to note that the total units under construction have remained flat since June 2022. This suggests that new home builders are not slowing down the pace of construction, even though they have a significant amount of inventory.

What Does This Mean for Home Buyers?

The current trend in new home construction is good and bad for home buyers. On one hand, more new homes mean more inventory, making it easier to find a suitable property. However, the fact that new home builders are continuing to construct new homes at a high rate suggests that they are confident in the demand for housing.

However, this confidence may be misplaced as several factors could cause the housing market to crash. These include equity growth going up too fast, unaffordability, and an oversupply of homes.

For those looking to enter the housing market, it’s essential to consider the current trends and historical data before purchasing. Waiting until after the FED pivot could result in lower interest rates and better deals on new construction homes.

Tips for Home Buyers

If you’re considering buying a home in this market, there are a few things to keep in mind:

1. Do your research. Look at historical data and trends to determine if the current market is sustainable.
2. Know your budget. Determine what you can afford and stick to it. Don’t get caught up in the excitement of a hot market and overextend yourself financially.
3. Consider waiting. If you’re not in a rush to buy, waiting for the right opportunity could result in a better deal.
4. Work with a real estate agent. A good agent can help you navigate the market and find properties that meet your needs and budget.

In conclusion, Zillow’s report shows that the current rate of new home construction is historically high. While this is good news for those looking to enter the housing market, it’s important to consider the potential risks of an oversupply of homes and unaffordability. Home buyers can make a smart investment in the housing market by staying informed and taking the necessary precautions.