New house construction lagging in D.C. region

Publish date: 2024-07-22

The challenges for most prospective homebuyers in the D.C. region are threefold: high mortgage rates, high home prices and a lack of homes for sale. For those buyers who have the funds for a cash purchase or who can handle payments on a loan at interest rates more than 7 percent, the biggest issue is likely to be the inability to find a place they want to buy.

“The big story in the D.C. region is the extreme lack of inventory of homes,” said Dan Fulton, a Reston-based senior vice president with Zonda Advisory Group, a residential construction data and consulting firm. “Homeowners are not selling because they’re locked into a loan with a much lower mortgage rate than is available now. This is pushing people to look into the new-home market.”

While buying a newly built home is an option for some buyers, unfortunately the supply of new construction is also severely short. The number of actively selling new home projects was 49 percent lower in 2022 than it was in 2015 in the D.C. region.

“The shortage of existing homes and of newly built homes is pushing prices higher,” Fulton said. "In combination with higher mortgage rates, that means buying a home is unaffordable for many people.”

New-home sales generally represent about 10 percent of all home sales annually, Fulton said. Nationally, existing home sales declined 18.9 percent in June compared to June 2022, according to the National Association of Realtors. That decline is attributed to a lack of homes for sale and to higher mortgage rates. In contrast, sales of newly built homes increased 24 percent in June 2023 compared to the previous year, according to the Census Bureau.

But finding a new home to buy in the D.C. area can be a challenge.

Trends in new homes

Starts, which refer to when construction starts on new homes, are down compared to 2021 and 2022. They are down 29 percent compared to the peak during the third quarter of 2021.

Buyers who prefer newly built homes often want them so they can choose options to personalize them, but given current market conditions some builders are producing “spec homes” at a faster rate than usual. Spec homes are built without a preconstruction contract and are sold after they are complete or nearly complete. Typically, the builder will choose the most popular options to include with a spec house, such as quartz counters, white cabinets and neutral paint colors.

“Lennar and D.R. Horton are mostly selling spec homes in their D.C. region communities right now,” Fulton said. “Normally, you can get a slightly better deal on spec homes than to-be-built homes since the builder wants to get rid of their inventory. But right now, you won’t see much of a price difference because inventory is so low that builders can sell their spec homes easily.”

Fulton estimates that spec homes sell for 10 to 12 percent above the base price for homes in a typical community because they include a few features that would have been optional upgrades.

“In 2021 and 2022, builders were doing even more spec building,” Fulton said. “The average is a 2.1-month supply of spec homes, but now we have a 1.5-month supply of spec homes in this region. Builders are reducing risk in anticipation of a possible pullback in demand.”

Still, demand is strong today, particularly among 35-to-44-year-olds who want to move to accommodate a growing family and among 65-year-olds and above who want to downsize, Fulton said.

“There’s some speculation that once mortgage rates subside to lower levels, home prices could skyrocket because of pent-up demand,” Fulton said. “We’re already seeing continued strong appreciation rates in this region.”

Another trend Fulton is noticing is that builders in the D.C. region are increasingly building townhouses and townhouse-style condos because of high land prices and construction costs. In the entire D.C. area, 38 percent of newly built homes were attached townhouses or condos in 2015, while today 60 percent of new homes are attached.

The largest number of sales of new homes are in the outer suburbs, in Charles County in Maryland, Manassas Park City and Frederick County in Virginia, and Jefferson County in West Virginia, according to Zonda.

Newly built homes are available for sale in the D.C. region in every price range from the $300,000’s to more than $1 million. Here are some communities where homes are currently for sale or more development is anticipated.

Given the lack of space for larger developments, D.C. has the smallest supply of newly built homes, but there are some under construction or anticipated:

Parks at Walter Reed. Condos and townhouses are available now and planned from NVHomes and Toll Brothers at the historic former Walter Reed Medical Center in Northwest, with prices from the upper $400,000s to the upper $800,000s.
Reservoir District DC. EYA will build townhouses on the site of the former McMillan Reservoir in Northeast.
District Towns at St. Elizabeth’s East. Knutson is building townhouses priced from the mid- $500,000s in Southeast as part of the redevelopment of the neighborhood.

In Charles County, which has seen increased sales since remote work trends began, news homes are available at:

St. Charles. Lennar continues to build single-family homes priced from the low $500,000s and townhouses priced from the mid $300,000s in this planned community.
Pinegrove. D.R. Horton is building single-family homes in La Plata priced from the upper $300,000s and low $400,000s.

In Prince George’s County, which has the highest number of new-home sales of all the counties surrounding D.C., a variety of builders are selling single-family homes priced from the $500,000s to the $700,000s and townhouses from the $400,000s. New condos are available with prices from the $300,000s and $400,000s. A few of these communities include:

Gateway West. Stanley Martin Homes is building townhouses in this Hyattsville community close to shops and restaurants.
Marlboro Ridge. Stanley Martin Homes is building townhouses in a planned community with an equestrian center.
Vista Gardens West. DRB Homes is building townhouses in this Lanham community near shops and restaurants.
Westphalia Town Center. Mid-Atlantic Builders and Haverford Homes are building townhouses in this mixed-use development and DRB is building single-family homes.

Fewer new developments are currently underway in Montgomery and Frederick counties, which is severely reducing options for buyers in those two regions, Fulton said. Among the few options are:

Amalyn in Bethesda. Tri Pointe Homes and Toll Brothers are building single-family homes and townhouses priced from $1.2 million and up in a community with a swimming pool and clubhouse.
Bloom Village. Ryan Homes is building townhouses in this Montgomery Village community priced from the mid-$400,000s.
Bloomfields. NVHomes and Ryan Homes are building single-family homes in this active adult community north of Frederick.
Mt. Prospect in Potomac. Toll Brothers is building single-family homes priced from $1.3 million and up in this North Potomac community.
Renn Quarter. D.R. Horton is building townhouses from the $500,000s and single-family homes from the $700,000s in this community in Frederick.
Westside Shady Grove. Lennar and EYA are building townhouses and condos near the Shady Grove Metro station priced from the $700,000s.

Virginia and West Virginia

Areas seeing significant new home growth are Virginia’s Frederick County and Berkeley and Jefferson counties in West Virginia, where builders have restarted some communities where construction slowed before the pandemic, Fulton said. Lennar and D.R. Horton are particularly active in these counties, with townhouses priced in the $200,000s and single-family homes priced in the $300,000s.

Closer to D.C., the long-awaited opening of the Silver Line extension is likely to spur more development in Fairfax and Loudoun counties where the new stops are located. There are currently 49 communities selling in Loudoun County, 38 selling condos and townhouses and 11 selling single-family homes, which demonstrates the increasing density of housing in that county, Fulton said. In Prince William County, there are 15 communities selling, including five that offer single-family homes, eight selling townhouses and two selling condos.

These are some actively selling communities in Northern Virginia:

Birchwood at Brambleton. Condos, townhouses and single-family homes are available in this Loudoun County active adult community priced from the upper $400,000s to the $900,000s and up.
Boulevard VI. In this City of Fairfax development, the IDI Group Companies Communities is selling condos priced in the $500,000s and NVHomes is selling townhouses priced from the mid-to-upper $900,000s.
Hartland. This Loudoun County community includes single-family homes from DRB Homes, Ryan Homes, NVHomes and Van Metre Homes, all priced from about $1.2 million.
Metro Walk at Moorefield Station. Located within walking distance of the Silver Line station in Ashburn, this Toll Brothers community has townhouses priced from the $900,000s.
Montebello. At this active adult community by Del Webb in Sterling in Loudoun County, villas and single-family homes are priced from the $600,000s and $700,000s.
Overlook at Dulles Tech. Stanley Martin Homes is building two-level townhouse-style condos with garages priced from the $600,000s in Herndon.
Potomac Shores. At this Prince William County planned community, which has an array of recreational amenities, condos, townhouses and single-family homes are available from Drees Homes, Pulte Homes, Ryan Homes and Stanly Martin Homes with prices ranging from the $400,000s to the $800,000s.

ncG1vNJzZmivp6x7uK3SoaCnn6Sku7G70q1lnKedZK%2B2v8innKyrX2d9c3%2BOaXBoamBku6bDjJymp6ukp8KkwMiopWaqlaKuqrrSZqOor18%3D

ZingB

New house construction lagging in D.C. region