New Home Construction Benefits from Shortage of Existing Homes
People looking to buy a home are increasingly turning to new construction because of the chronic inventory shortage of existing homes.
Builders of new homes are also facing challenges, including shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by higher interest rates.
In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 averaged 12.7%. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ searches in the quarters ahead, according to NAHB Chief Economist Robert Dietz.
With interest rates more than doubling from 2021, the HMI survey shows incentives have played a key role in attracting buyers in this new economic climate but now the use of these sales inducements is gradually slowing across the board.
The share of builders reducing home prices dropped to 27% in May, down from 30% in April, 31% in Feb. and March, and 36% last November. The average price reduction for a new home remains at 6%, unchanged for the past four months.
In May, 54% offered some type of incentive to bolster sales, down from 59% in April and 62% last December.
The Home Depot thinks we’ve already seen the impact of higher mortgage rates on potential sellers. Approximately 40% of owner-occupied homes are owned outright. Of the households that hold a mortgage, close to 90% of them hold fixed-rate mortgages under 5%.
Higher mortgage rates reduce the buyer pool and make it less attractive for owners to sell. People are also spending more time at home and homes are definitely getting older.
That means there’s currently more incentive to stay in place and improve your home than to sell.
Trucking and Shipping Demand Slows
The demand for freight and for drivers has deteriorated over the past year and per-mile rates for drivers have plunged since the pandemic boom. Trucking industry experts say the sector could be heading for a bigger downturn than during the Great Recession that began in 2008.
Trucking is considered a gauge of the broader economy, as it represents nearly two-thirds of tonnage carried by all domestic freight transportation, according to the American Trucking Association (ATA).
Inflation, higher operating and maintenance costs, and the declining demand for goods are behind the slowdown. After adjusting for inflation hovering near 5%, Bloomberg noted that the current National Truckload Index rate of $1.49 a mile is actually closer to $1.19. As capital becomes more expensive, trucking companies have been forced to pay more than usual to finance their vehicles. Overall truck tonnage fell 1.7% in April.
US consumers boosted their purchases of goods during the pandemic as restrictions on many activities limited services spending. As restrictions ended last spring there was a sharp pivot back toward services, leaving merchants' warehouses overstuffed. Retailers pulled back on orders from overseas suppliers while they burned off excess inventory.
Container imports into US West Coast ports declined nearly 23% in the first quarter, according to Descartes Datamyne, a data analysis group owned by supply-chain software company Descartes Systems Group. US West Coast ports are the main gateways for trade with Asia and for the array of suppliers producing consumer goods for American retailers. Lowell, Arkansas-based J.B. Hunt Transport Services, a bellwether for the US freight market, said its customers are talking about restocking but so far that has not created an increase in shipping volume.
Amazon Anywhere Metaverse
Amazon is introducing Amazon Anywhere, which lets customers shop and buy physical products from Amazon within a virtual environment, such as a video games, augmented reality (AR) and third-party mobile apps. They’re launching it within Peridot, a new mobile game from Niantic. Items available for purchase include t-shirts, hoodies and phone accessories. Customers put the item in their cart and see everything just as they would in the Amazon store. They check out via their linked Amazon account. Products will then ship and can be managed just like any other Amazon order. This latest introduction comes after last September’s launch of the Amazon metaverse in India. While most consumers are not in the metaverse yet, an increasing number of retailers are jumping on board.
Amazon Uses Several Tactics to Speed Up Delivery and Reduce Costs
Amazon appears to be ranking items they display in searches based at least in part on how quickly and efficiently the item can be delivered to the shopper, one of many steps they’re taking to speed up delivery.
Amazon research shows that the faster items are delivered, the more likely it is a customer will return. During the pandemic, Amazon nearly doubled their warehouse space. Prior to that, Amazon shipped items from whatever warehouse stocked them, even if that was across the country from the customer. Now Amazon has divided the US into eight regions and is storing commonly ordered items in each region so shipping can stay as localized as possible.
Amazon reports that 76% of orders are now fulfilled from a warehouse in the same region as the customer, compared to 62% last year. The company also said the distance items travel between fulfillment centers and customers has decreased by about 15%. Amazon has also expanded the number of delivery centers that store essential items customers typically want delivered quickly like toiletries. The use of same-day delivery increased by 50% in the first quarter of 2023 compared to a year ago, with about 26 million customers paying more for the fastest option.
An Amazon spokesperson told the Sourcing Journal that they couldn’t have done that in 2019 because their distribution network could not have supported it. There have not been any reports on whether the new procedures are disproportionately benefiting large sellers who have enough inventory available to spread stock across all regions.
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