Real Estate

We’re in the golden age of home building — here’s how investors will benefit from building.

This article is presented by Connect Invest. Read our editorial guidelines for more information.

To say that the COVID-19 pandemic began during a period of economic crisis would be an understatement, presenting challenges across a range of sectors. Real estate debt investors, known for their gradual accumulation of wealth, are still enjoying favorable returns on their investments amid the pandemic. However, investors faced a dearth of opportunities.

Buyers facing low housing inventory and fierce competition, as well as investors facing uncertainty in the economy, weren’t the only ones facing disruptions brought on by the pandemic. The domestic construction industry faces significant barriers to new construction projects due to supply chain bottlenecks, labor shortages, rising costs of construction materials, high interest rates, and government regulations.

According to one The June 2020 survey was conducted by the Associated General Contractors of America., 68% of contractors had seen a project canceled as a result of the COVID-19 pandemic. 48% saw a project that started before the pandemic stopped.

Emerging from the pandemic, there is a constant demand for new constructions to ease the pressure that is unaffordable for most buyers. While homebuilding rates continue to stagnate, or Even a little fallBoth buyers and investors are left wondering: When will new construction reach a level that starts to ease market pressures?

Facing a growing housing shortage

Low inventory and high interest rates have been the dominant forces shaping the real estate landscape over the past three years. The shortage of available homes triggered a chain reaction, sending prices to unprecedented highs.

Even so, prospective homebuyers continued their search, even as affordability slipped out of reach for the average buyer. Due to the obvious fact of insufficient housing supply, the resulting competition continues.

According to Realtor.com, between 2012 and 2023, the disparity between single-family home construction and home construction The total spread to 7.2 million homes.. Multifamily construction, such as apartments and townhomes, narrows the gap to 2.5 million homes, still a dramatic figure.

Household composition refers to the change in the number of households from one year to the next, which helps determine the demand for new housing. For example, a person who moves out of their parents’ home and signs their own lease is an example of a household formation.

It would be historically inaccurate to attribute the current housing crisis solely to the COVID-19 pandemic and its aftermath. While CoVID-19 has exacerbated many problems, the roots of many problems extend further back. As a result of the 2009 housing crash, the United States experienced more than a decade of building under construction in terms of population growth.

It took more than 11 years till 2020 for the industry to fully recover. And just as housing construction found its footing and returned to pre-2009 rates, the pandemic wreaked havoc, disrupting progress.

As we move through the pandemic, the housing market will undergo a gradual recovery, and may face further challenges before improvements are evident.

Facing the new reality of the real estate market

The concept of the “new normal” has permeated various sectors over the past four years, including dramatically impacting the real estate market. Amazingly, only 25% of potential buyersBy the second quarter of 2023, there were inquiries about new construction homes nearby.

According to the National Association of Realtors (NAR), a quarter of buyers expressed a preference for new construction, yet only 13% ultimately purchased a new home, with 87% choosing an existing home.

While there is a gradual shift toward buying new homes, this trend is a response to current market conditions rather than a reflection of preferences. The spread of new construction purchases is largely driven by significant differences in supply levels. 8.3 months supply of new homes compared to only three months supply of existing homes, till March 2024. For buyers and investors, building a new home has become a practical choice.

Despite rising prices and interest rates, demand for homes remains strong, prompting buyers to go through the hurdles and hurdles in their efforts to become a homeowner, and as a result, competition increases even more.

As supply chain issues are resolved, supply costs are reduced to pre-pandemic levels, and labor shortages are eliminated, new home construction accelerates. This development is particularly encouraging for real estate investors.

Why investing in new construction is a wise idea.

The truth is that only new home construction can meet current (and growing) demand. There is no way around it. According to NAR estimates, new home sales are projected to increase. 13.9% growth in 2024.12.3 percent in 2023.

However, even if the current home inventory increases, it will not be enough to close the supply-demand gap. A significant drop in interest rates will be necessary to stimulate this market, as existing homeowners are reluctant to sell and discard their low pre-2022 mortgage rates—a decision that is entirely understandable. Is.

Observing major investors like Berkshire Hathaway, led by CEO Warren Buffett, who recently Acquired substantial stakes in leading real estate firms like DR Horton, Lennar, and DVR, provide a promising future for the construction industry. In total, the multinational conglomerate holding company bought more than $800 million worth of stakes in prominent real estate firms last year.

Even Howard Hughes CEO David O’Reilly has. 2024 has been dubbed the “golden age” for home building.. When asked to clarify his thoughts, O’Reilly said simply: “We have demand that far outstrips supply,” referring to the countless buyers eager to buy homes on the market. happened

With this strong demand, limited existing homes for sale, and developers offering mortgage rate buyouts on new construction have created an ideal environment for homebuilders who recognize their high demand. Howard Hughes’ faith in new construction is evident from his involvement in projects such as Brand new, 37,000 acre community In Buckeye, Arizona, called Teravalis, is slated to open in 2025, along with several other single-family and multifamily developments around the country.

How to Invest in New Construction

The great news is that you don’t need a fortune anywhere near that of Howard Hughes or Berkshire Hathaway to invest in new home construction. In the digital age, fintech and alternative investment platforms have made investing in construction real estate accessible to people from diverse backgrounds, whether accredited or unaccredited. This democratization of private real estate investing has opened countless doors for new investors looking for passive income.

Traditionally, investing in new home building required substantial capital, extensive industry contacts, complex market and builder research, securing financing, monitoring progress, and a lot of paperwork, often clear, defined. Without release dates. However, alternative investment platforms have streamlined the process, taking over much of the manual work from investors and significantly simplifying the investment journey.

Final thoughts

Demand for new construction is strong due to the continued housing shortage and increased competition from buyers. As the market slowly recovers, it is hoped that addressing supply chain issues and easing labor shortages will accelerate new home construction. This presents a promising opportunity for real estate investors, especially as alternative investment platforms democratize access to the sector.

Connect with investment. Short note portfolio model This allows investors to easily take advantage of the new construction that is likely to increase this year. Start growing your wealth. Today!

This article is presented by Connect Invest.

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Your relationship with private real estate investing.

Connect Invest is an online investment platform that provides short-term investment opportunities. These investments contribute to a diversified portfolio of real estate projects comprising both commercial and residential developments at various stages.

Note via BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.


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