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ew construction is playing a significant role in shaping affordability across various regions, with the South experiencing the most substantial benefits. As the spring homebuying season approaches, uncertainty surrounds interest rates and economic policies that may impact inflation. However, new home construction could provide some clarity at the local level.

    A recent report by First American found that metro areas with higher-than-average new home construction activity tend to see improved affordability, while those with less construction experience slower price growth. The combination of slowing home price appreciation and increased inventory due to construction may be enough to lure buyers back into the market this spring.

    According to Sam Williamson, senior economist at First American, recent regional construction trends will influence whether the housing market is a "lion" or "lamb." Among the 50 largest markets, Austin had the highest rate of building permits per 1,000 households in February, with a slight decrease in home appreciation. Tampa saw the biggest decrease in home prices while also having a higher-than-average number of building permits issued.

    On the other hand, Pittsburgh, which has below-average construction activity, posted the biggest annual increase in home prices. The cities that issued the fewest residential building permits – Buffalo and Providence – also saw prices jump by more than 9%. However, not every metro saw a clear correlation between building permits and price growth.

    Increased construction can boost overall housing supply and enhance affordability for buyers. As Williamson noted, builders are raising roofs in the South, which tends to have more available land and less restrictive zoning laws. This virtuous cycle of demand-side factors will continue to attract new residents to these regions and encourage additional construction.

    With buyers increasingly squeezed by high home prices and borrowing costs, it doesn't take much to put homeownership out of reach. A $1,000 increase in the median price of a new home would push 115,593 people out of the market, according to the National Association of Home Builders. Nearly 75% of U.S. households cannot afford to buy a median-priced new home.

    Mortgage rate uncertainty will continue to influence affordability and buyer demand for new and existing homes alike. The latest inflation report showed some easing, but it remains unclear where mortgage rates are going next. It may be several weeks before we know how economic factors will impact mortgage rates and consumer behavior, ultimately affecting the housing market's performance.