Seasonality of New Home Construction

Construction Seasonality

If you think the new homes market is subject to extreme seasonality, think again! Though somewhat of a factor, it isn't always true.

Realtors who don’t sell many new construction homes might think this market is subject to extreme seasonality due to the challenges of building homes in winter.

That’s not entirely true, however.

While places that have severe winter weather do experience more new-home sales seasonality than locales with milder climates, annual cyclicality is due more to demand patterns than supply constraints, says Michael Carliner, an independent housing economist and consultant in Potomac, Md.

“The difficulty of building in winter is a factor, but a lot of the building cycle is built around the school year and people wanting to move before their children start (a new) school,” Carliner says.

Weather-related seasonality is “more of a factor” in the Midwest and Northeast than it is in the South or West, Carliner explains. And that’s true for both builders, who might not start new homes when snow’s on the ground, and buyers, who might not go out home shopping in bundle-up weather.

“It’s hard to break out how much (of seasonality) is demand and how much is supply,” Carliner says. “The parts of the country where there are more severe winters have more seasonality, but it’s not that (builders) can’t build in winter. It’s that people don’t want to go out home shopping in winter.”

Seasonality has actually diminished during the last 10 to 15 years due in part to improved building technologies, Carliner says.

One example is additives and procedures that can help to prevent damage to concrete poured in cold weather.

“We’ve heard a lot in the last few years about the problems of the weather in winter and yet the pattern has not overall become more seasonal.” Carliner says. “(Winter weather) certainly can be a factor, but it hasn’t been an overwhelming factor.”

Closing in March

Either way, seasonality or its absence can create opportunities for Realtors who make new construction homes part of their business.

Ken Pozek, a Realtor with Keller Williams Realty in Northville, Mich., is a case in point.

Pozek says resale home sales in his market, like many others, heat up from April to September, but new construction homes create opportunities and generate income for him at other times of the year as well.

One pattern, he says, is that he usually gets “a ton” of calls from frustrated and disappointed buyers in August, near the end of the traditional homebuying season.

“We go down the new construction route, and in March, April, May, I have a lot of new construction closings from the year before,” Pozek says. “Then they’re having to list their (existing) home for sale out of market time.”

Demand, Not Weather

Builders became more cautious about housing starts after the 2008 recession. Rather than planning a lot of starts to coincide with spring’s mild weather, builders are pacing starts to meet demand, which peaks in the spring due to the school year.

“It’s not so much ‘Springtime is coming. We need to launch a new subdivision’ as it is ‘We are 70 percent sold out with this one, so now it’s time to open a new one,’” Pozek says. “They’re careful not to be overprescribed.”

If demand heats up out of season, builders offer more so-called spec homes, “spec” being short for “speculation.” These homes are started and completed without a purchase commitment from a specific buyer.

Spec homes are good opportunities for Realtors since buyers can see the home further along in the construction process, Pozek says.

All that doesn’t mean builders aren’t “scratching the buyer’s itch,” to use Pozek’s description, with new subdivisions opening in the spring. They are. Rather, the timing is more about demand and marketing than weather issues.

“They have the roads in. They’ve started planting. There’s a lot of ‘coming soon’ sort of stuff,” Pozek explains. “They prep late the year before and then they launch in early spring.”

Whether it’s weather-related or demand-driven, seasonality can make it challenging for builders to hire dry wall hangers, electricians, plumbers, painters and other subcontractors who work on new homesites. Idle in winter, these trades are overly busy in spring.

Selling Seasonality

Tara Moore, a Realtor at RE/MAX Select in Winter Garden, Fla., says home sales in her community typically slow in winter, but also “get a kick from the snowbirds,” people who live in colder climates, but spend the snowy months in Florida’s sunshine.

These “birds” are eager to shop for a home in Florida when they might not want to shop further north. Even the town’s name — Winter Garden — plays on this idea.

Who’s the Buyer?

Sales contracts generally are written with the expectation that a new home will be ready when its buyers want to move in. Weather can cause delays, however.

Realtors can use that as a sales point, saying “If you wait, your home might not be ready in time,” Carliner suggests.

Realtors can also match buyers’ needs to seasonal patterns.

Homes that haven’t been started are more likely to be presold in spring while homes that have been completed tend to be ready in winter.

“If someone is moving in from outside the area, they probably want a home that’s completed or nearly completed,” Carliner says, “whereas someone who lives in the area and is trading up is much more willing to consider a home before it’s started.”
Marcie Geffner is a freelance contributor to NewHomeSource Professional. You can find her on Google+.
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