November 3rd, 2008 Categories: Bethesda
I’ve recently been working with a couple clients interested in new construction “infill” homes in Bethesda. We’ve seen quite a few homes, but notice fewer homes are coming to the market. This is an interesting segment of our market in which older homes have been demolished and replaced with new construction. The average quality of these homes is very good with extensive use of hardwood flooring, fantastic kitchens, custom mouldings and premium bathroom amenities. Add a great ‘close-in’ location, and you have product that area home buyers love. A few trends are working to reduce the introduction of new homes in Bethesda.
First, let’s take a snapshot of the current market. I analyzed all sales of new infill homes priced from $1.2M to $1.7M. Over the last six months, 27 have gone under contract and sold, and 8 more have gone under contract but haven’t closed — 35 contracts. There are currently 25 available. So, there’s between 4 and 5 months available inventory. That’s pretty good for the sellers – definitely not a glut of homes. Still, with recent sales we see that demand is softening with higher price concessions. Many recent sales are closing $50,000 to $100,000 or more off of list price. There’s also a couple bank-owned properties from builders which is another sign of softening demand.
Three other factors make it tougher for builders to make a profit on new construction: a very long permitting process, elevated prices for older homes, and more expensive (and harder to find) construction loans. I spoke with a couple of builders who confirm that it’s very risky to start new projects right now. Construction costs haven’t come down, and higher loan costs still require premium sales prices. Taking all permitting processes into account, it can take 18 to 24 months to deliver a new home to the market. Add it all up, and it’s a lot of risk for new home builders.
As we see fewer homes in the pipeline, I expect current inventory to be worked down sooner in Bethesda compared to other areas of Montgomery County. The fundamentals for the market here are still very good, so I believe that a more limited supply of newer homes will keep demand very healthy in the coming months. Contact us for a detailed analysis of this segment of the housing market. What do you think? Add a comment!