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2023 New Construction Market Outlook

Predictions for the 2023 New Construction Market

The housing market took builders, developers, and real estate investors on a wild ride last year, leaving many to wonder what 2023 will look like.

Builders saw hope in January 2023 when the National Association of Home Builders announced the first jump in builder sentiment since December 2021. Then in February, builder sentiment rose again – marking the first month-over-month increase since late 2021.

The back-to-back increases left builders asking: what can we expect in 2023?

Through various resources – including Lima One’s latest whitepaper, What to Expect from the New Construction Market in 2023 – we’ll break down construction market data to paint a picture of what investors can expect from the construction market this year.

When building a home, you have to be as precise as possible. That’s not always easy when dealing with unexpected weather conditions or having uneven ground. But what if you could guarantee perfect home-building conditions every single day?

In this episode, Ken Semler, President and CEO of Impressa Modular, takes a deep dive into:

• The benefits of building modular homes
• The costs involved in modular homebuilding
• Onsite vs. off-site construction

Modular construction isn’t new – companies like Marriott and other hotel chains have been using this off-site construction method to build properties in a short amount of time. Now modular homebuilding is moving into the single-family space.

In this episode, Ken Semler, President and CEO of Impressa Modular, is back and takes a deep dive into:

• Financing options for modular home builds
• Regulations that impact modular home building
• The difference in regulations for onsite vs modular builds

2023 New Construction Trends

The US construction industry is expected to grow by 6.1% to reach $1.42 million in 2023, according to ResearchAndMarkets.com's Q1 2023 United States Construction Industry Databook Series report. Despite current market challenges in certain construction sectors, medium to long term growth remains in view with expected steady growth over the remainder of 2023, according to the report.

That growth momentum is expected to continue – recording a compound annual growth rate (CAGR) of 5.2% between 2023 and 2027, while the construction output is expected to reach $1,74 million by 2027. While investors and builders have hope on the horizon, it’s important to look at permits, starts, material prices, construction labor, and deliveries for a clear view of what’s happening in the market.

Permits & Starts

• Permits and starts decreased slightly in 2022, as builders slowed down their single-family builds when they saw home prices peak. Projections indicate another dip in 2023.
• Multifamily starts and permits increased by double-digit percentages in 2022 while single-family starts dipped, but projections indicate both will decrease in 2023.

Material Prices

• While construction material prices have increased dramatically since the beginning of the pandemic, builders have seen some recent declines despite overall inflation.
• 60% of builders expect increases from the current prices in 2023, according to ProBuilder, but the numbers don’t indicate that has happened yet.

Construction Labor

• By adding 242,000 new jobs, the construction industry saw its unemployment rate drop to 4.4% (from 5.0% a year ago).
• The decrease in starts may help, but builders will still need to factor in higher labor costs for realistic budgets in 2023.

Key Takeaways for Builders

So, what should investors take away from these stats and trends? It’s hard to make a blanket statement, but here is what we’re confident in saying:

Demand is Still Solid

While builders may wish for the seller’s market of 2021-22, they should recognize that demand is still there. Numbers like household formation and inventory on market indicate a critical mass of buyers who would like to purchase new builds.

Builders Are Pivoting from Spec Homes to Pre-Sold Homes

In 2021-22, spec homes were easy wins for builders, because home prices continued rising throughout the build process. That let the builders get maximum prices for the builds. But now, as home prices are flat nationwide and down in some formerly hot markets, builders are turning from spec to pre-sold builds to limit risk and ensure disposition. That takes out some upside potential on home prices, but it also ensures the builder will have a profitable exit on a deal.

The Market is Fundamentally Sound

All in all, the new construction market is solid. It may not be stable, with all the stats on home prices, materials prices, and interest rates are still prone to vary in 2023. But the overall fundamentals are in place for builders to succeed and profit. Yes, the massive profit potential of previous years may not be there, but there’s plenty of money to be made from new home sales and new home starts across the market in 2023.

A Lender Built for Builders

When it comes to new construction loans, the right lender and loan products are crucial. As the market changes, you need a lender with versatile loan options designed with versatile investment strategies in mind.

Private lenders like Lima One offer builder financing through a variety of new construction loans.

Interested in the BRRRR method and looking for the right rehab funding? Lima One offers some of the most competitive rental and fix and flip loans designed to help investors be successful with the BRRRR method.

Or maybe you’re interested in taking advantage of the red-hot build to rent market. Whether you’re interested in build to rent loans or new construction loans for investors, Lima One has the financing options you’re looking for.

Maybe you’re looking to buy time or build your portfolio through an asset-based loan. With a bridge loan, real estate investors have the option to finance property they plan to rehab with construction bridge loans that can be converted into a long-term fix and hold loan later.

Regardless of your construction investment strategy, Lima One is the lender you can count on. Contact us today to discuss your next deal, or if you have a deal in hand, accelerate the process by applying now.