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A look at this summer's surprising home building boom

JUANA SUMMERS, HOST:

There is something surprising happening with the nation's homebuilders. They are having a busy summer. Mortgage rates are close to the highest they've been in two decades, which would ordinarily be a drag on housing. But builders are hustling to hire new workers to pour foundations and frame new walls. Newly built houses are in high demand thanks in part to a shortage of existing homes on the market. NPR's Scott Horsley joins us now. Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Juana.

SUMMERS: So Scott, builders are selling a lot of houses even though mortgage rates are sky-high. Please explain this to me.

HORSLEY: Yeah, it is a little counterintuitive. The average mortgage rates climbed to around 7%, but homebuilders are not slowing down. In fact, they've added about 21,000 workers over the last three months. And new numbers out from the Commerce Department this morning showed builders broke ground on almost 10% more single-family houses in July than they did in the same month a year ago. Robert Dietz, who's chief economist for the National Association of Home Builders, says new homes have been kind of an oasis in the current market. That's because people who already own homes are kind of trapped by these rising loan rates, and so the supply of resale houses has really dried up.

ROBERT DIETZ: If you're a homeowner who's got a 2- or a 3% mortgage, you're not in a hurry to put your home up for sale to purchase a new one because that would require a higher mortgage interest rate. So resale inventory is about half of what it should be. That is supporting demand for new construction.

HORSLEY: Just to give you an idea of how this has seesawed, existing home sales in June were down about 19% from a year ago, but new home sales were up almost 24%.

SUMMERS: Huh. Interesting. OK, so Scott, how do the prices of new homes and existing homes compare?

HORSLEY: Right now, they're very similar. The average price of a new home sold in June was about $415,000. That's only about $5,000 more than the average resale house. That's a much smaller gap than we would typically see. About 25% of new homebuilders have actually been cutting their prices, and they have gotten some help from lumber, which has gotten a lot cheaper over the last couple of years. Other building materials have also come down a little bit in price.

But the big thing is builders are actually downsizing their floor plans a little bit. That's a reversal from what we saw early in the pandemic, when people were spending all day at home and clamoring for more space. Jessica Hansen, who's a vice president at the big homebuilder D.R. Horton, says buyers still want space. But what they really want is a monthly payment they can swing.

JESSICA HANSEN: They continue to want as much square footage as they can get, but they're constrained by what they can afford, which is why we continue to start more and more of our smaller floor plans. So we would expect just continued very gradual moves down in our average square footage today.

HORSLEY: Hansen says the average house her company is building today is about 2% smaller than it was a year ago.

SUMMERS: I mean, Scott, I got to be honest. Those average sales prices you were talking about - they still sound pretty high to me. What does this mean for a person who's trying to buy their first home?

HORSLEY: Yeah, it's a big lift. The monthly payment on an average home today is about $800 higher than it would have been a couple of years ago, when mortgage rates were closer to 3%. Now, certainly, lower interest rates would help. But Dietz, the Home Builders economist, says until we find a way to build smaller, denser, more affordable houses, a lot of people are going to be priced out.

DIETZ: This is a very frustrating market for the first-time homebuyer that can't find resale inventory, who's increasingly looking at new construction and, of course, dealing with high interest rates. If you don't have access to the bank of mom and dad to get that down payment, it is a very challenging market.

HORSLEY: Now, there is some good news on the horizon for renters. There's about a million apartments under construction right now. And when those become available, that should put some downward pressure on rents.

SUMMERS: NPR's Scott Horsley. Thanks as always.

HORSLEY: You're welcome.

(SOUNDBITE OF LADY WRAY SONG, "HOLD ON") Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.