Sales of new construction take an extra hit when buyers worry about falling house prices and rising interest rates.
During the last quarter of 2022, the number of apartments sold decreased by 43 percent, compared to the same period in 2021.
In terms of the number of newly produced villas and townhouses sold, the reduction was as much as 60 percent during the quarter.
“In a situation like this that we are in now, when the uncertainty is quite large in general, we have also seen historically that the new production market is affected to a greater degree,” says Hemnet’s market analyst Erik Holmberg.
Buyers are intimidated in an uncertain market
The new production market differs from the second-hand market in such a way that it often takes a long time until moving in.
Often you buy the home on a blueprint, with moving in a year or two ahead of time. And as buyers, many would like to sell their current home first – and buy a new one later.
“It is also the recommendation from brokers that you should sell your existing home before you buy something new, because then you know what you are dealing with,” says Erik Holmberg.
That motto can be more difficult to live up to when you buy brand new. Most people need somewhere to live until the new home is ready.
— Then you often have to deal with the risk of a price drop on both of these homes during this period, and that creates an extra tough situation in this situation, says Holmberg.
Construction is losing momentum
The construction companies have also reduced the pace of construction significantly as a result of increased construction costs and reduced demand for housing.
“Buyers are becoming more cautious, but the construction companies are also waiting and seeing where interest rate trends and electricity price trends are headed, and so on,” says Erik Holmberg.
During the last quarter of 2022, 61 percent fewer newly produced apartments were published on Hemnet, compared to the same period the year before. For newly produced villas, a reduction of 23 percent is seen.
Which of course may have affected the number of objects sold, according to Erik Holmberg.
— But there is still a relatively high supply of newly produced homes, even if fewer homes are published.
Rising prices
The prices of second-hand homes fell sharply last year, as a result of rapidly rising interest rates. But on the new production market, no price drops are visible, according to Hemnet’s figures.
The average starting price of a newly produced apartment actually increased by 11 percent at an annual rate during the fourth quarter of 2022. For the villas and terraced houses, the price increase was 17 percent.
The prices of new production are often more volatile than those on the second-hand market, according to Holmberg.
“Often this is a price that was decided earlier when the project was set up, so it becomes more difficult to correct the price,” he says.
Instead, construction companies can pause projects, reduce supply, and thus keep prices up.
However, it may happen that new production will also be cheaper in the future, but then with a lag.
— On the other hand, if construction companies have the opportunity to pause projects, they may do so, rather than correct prices.