2020 new home sales are rising faster than home builders can replenish their supply. Sales of new homes rose to its highest level in over 14 years during the month of August. As a result, there is a very low 3.3 months’ worth of inventory. Generally, the new home sales market is considered “balanced” when there is a six month supply of new homes for sale.
Home buyers can expect to see rising home prices. However, the greatest demand is at price points below $300,000 for first-time home buyers. In hot markets such as Orlando, Florida, new residential construction rose by 22% from August 2019 to August 2020. Across the United States, much of the rising cost is attributable to a severe housing shortage. Builders have not kept pace with demand for several reasons. Many still have fears ever since the 2008 market crash. Also, they may have difficulty in building due to zoning issues or neighbor concerns about parking and density.
Home Builders Facing High Lumber Prices, Other Constraints
- Lumber futures reached a record high of $1,000 per 1,000 board feet in September. The commodity has been the top-performing major raw material during 2020, due to high demand from home builders and home owners undertaking do-it-yourself (DIY) home remodeling projects.
- Buildable lots have been in low supply, hampering 2020 new home sales. As early as January, 40% of single-family builders reported the supply of lots was low, and 18% reported the supply as very low. Because of the low supply, lot prices have been increasing, and lot sizes have been decreasing.
- Construction workers continue to be in short supply. The Home Builders Institute recognizes a shortage of workers. This shortage is due to increasing demand for housing and a low supply of existing homes for sale. Skilled workers are retiring from the home building industry. However, not enough new workers coming into the field to replace those who are retiring.
New Construction Loans for 2020 New Home Sales
Transferees looking for a new construction loan should be aware of how it differs from a traditional mortgage loan. Tim Hofmann, Vice President, Construction Lending Administration Manager at TIAA Bank previously shared that a new construction loan has the following features:
- Can be thought of as a specific dollar amount “line of credit”
- The length of a new construction loan coincides with the time to build the home, usually around 12 months.
- Home builders/borrowers obtain funds by submitting requests for draws to the lender.
- New construction loans are not sold off to investors; they remain within the lender’s portfolio.
- Each draw request is accompanied by an interest payment at that specific time on what is drawn.
- Following completion of the home build, the lender grants a mortgage for the new home.
- The new mortgage issued by the lender results in paying off the construction loan balance.
What Does This Mean for 2020 New Home Sales?
Transferees seeking a new construction loan to build a home should first review their current financial arrangements with a qualified lender. Depending on their financial circumstances, transferees with mortgages on their current home may still be able to qualify for a new construction loan. Lending requirements will determine if they can qualify for a new construction loan while still holding their current mortgage debt.
What Should Employers do?
Employers that have transferees who are seeking a new construction loan for their relocation should direct them to speak with qualified lenders and financial advisors for guidance on 2020 new home sales. They should also direct them to speak with an experienced and qualified Realtor® who can assist them in determining where they want to live in the new location.
Employers should also review and benchmark their relocation policy with a Relocation Management Company (RMC). RMCs that have knowledge and experience with relocations involving new home sales are ideal sources for policy updates and best practice information. They will also understand the reasons why employers should always encourage transferees to buy instead of rent.
There may be some necessary relocation policy enhancements to allow for exceptions that arise from transferees who want to obtain a new construction loan. The 2020 real estate market balance between supply and demand is not equal. As a result, pricing, availability, and speed of real estate transactions may impact the ability of transferees to obtain financing. These same issues may also hinder transferees’ ability to arrange new home sales in their most preferred locations.
Conclusion
GMS’ team of domestic relocation experts has helped thousands of our clients understand how to provide solutions for transferees looking to purchase a new home. During the challenging 2020 new home sales market, it is important for employers to provide new hires and transferees with guidance and resources. This will help employers ensure a smooth and successful relocation process.
GMS was the first relocation company to register as a “.com.” The company also created the first online interactive tools and calculators, and revolutionized the entire relocation industry. GMS continues to set the industry pace as the pioneer in innovation and technology solutions with its proprietary MyRelocation® technology platform.
New SafeRelo™ COVID-19 Knowledge Portal
GMS recently launched its new SafeRelo™ COVID-19 Knowledge Portal featuring a number of helpful resources including:
- Curated selection of news and articles specific to managing relocation programs and issues relating to COVID-19
- Comprehensive guide to national, international, and local online sources for current data
- Program/Policy Evaluation (PPE) Tool for instant relocation policy reviews
Contact our experts online to learn how to help transferees maneuver through the 2020 new home sales market, or give us a call at 800.617.1904 or 480.922.0700 today.
GMS is sharing public knowledge and can help companies more clearly understand new construction loans for relocations. However, GMS is not a CPA firm or a lender, and is not giving financial advice. Everyone’s financial situation is different; individuals and employers should consult their lenders and financial advisors prior to making any decisions.
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