Homeowners Don’t Want to Sell, So the Market for Brand-New Homes Is Booming

LEHI, Utah—After mortgage rates shot up last year, Ivory Homes, one of Utah’s largest builders, suddenly had few buyers for the hundreds of homes it had under construction. So Clark Ivory, the chief executive, laid off 9% of his staff, and by January he had slashed construction by nearly 80% from its 2022 peak.

Then, much to his surprise, sales of new homes started picking up. By May, even though mortgage rates weren’t really budging, sales for all home builders were at their highest level since early 2022.

Millions of American homeowners have been reluctant to sell because they can’t afford to give up the low mortgage rates they have now. Only 1.08 million existing homes were for sale or under contract at the end of May, the lowest level for that month in National Association of Realtors data going back to 1999.

For many would-be buyers—in Utah and in many other markets—new construction has become the only game in town. Newly built homes accounted for nearly one-third of single-family homes for sale nationwide in May, compared with a historical norm of 10% to 20%. Existing-home sales in May fell 20% year-over-year, while new single-family home sales that month rose 20% on an annual basis.

That divergence is yet another example of how this housing market is behaving like no other. “It’s such a rare thing,” said Rick Palacios Jr., director of research at Irvine, Calif.-based John Burns Research & Consulting, who predicts the disparity will widen in coming months.

So far, the home-building revival, coupled with financial incentives offered by builders, is providing only minor relief to prospective buyers. Builders aren’t erecting enough homes to offset the shortage of existing ones on the market, meaning buyers in many places still face bidding wars. On a national basis, home prices have only declined a small amount from their record highs in spring 2022. Interest rates have risen in recent weeks to their highest level this year.

For builders like Ivory, though, it has been a lifeline. Builder confidence, which declined every month in 2022, has risen for seven straight months to its highest level since June 2022, according to the National Association of Home Builders.

New homes under construction at Holbrook Farms, a development south of Salt Lake City in Lehi. Photographs by Kim Raff for The Wall Street Journal

Investors believe the home-building industry—one of the most sensitive to changes in interest rates—has already gone through its recession and is coming out the other side

Publicly traded home builders have reported stronger-than-expected results this year. The S&P Homebuilders Select Industry stock index is up 39.8% this year as of Tuesday’s close, outpacing the S&P 500’s 18.6% gain. Share prices for D.R. Horton, Lennar and PulteGroup, the three largest home builders, have performed even better.

The pandemic stoked an especially broad housing boom in 2020 and 2021. Many buyers sought larger spaces to spend more time at home, while others wanted to move closer to family. Ultralow interest rates made it inexpensive to finance their purchases.

Home-building activity surged. Mountain West states such as Utah became an attractive destination during the pandemic for people leaving expensive West Coast cities in search of a lower cost of living and an outdoors lifestyle. Home prices in the Salt Lake City area soared 53% between January 2020 and May 2022, on a seasonally adjusted basis, according to Freddie Mac’s home-price index.

Family-owned Ivory Homes, which was founded by Ivory’s father, Ellis Ivory, has been one of Utah’s top home builders for decades. Clark Ivory, 58 years old, became CEO in 2000.

In 2006, around the peak of the last boom, Ivory got worried about speculative investing. Ivory Homes started buying less land and paying off debt. To avoid selling to flippers, the company required buyers to sign an agreement that they were purchasing their homes as primary or secondary residences and that they wouldn’t sell for at least a year.

U.S. home prices fell 27% between mid-2006 and early 2012, sending ripples throughout the global economy and world financial markets. Ivory Homes stayed profitable between 2008 and 2012, Ivory said.

The pandemic-driven housing boom, Ivory said, didn’t involve as much speculation. Lending standards have improved, and investors have been buying homes to rent out to tenants, not to flip. During the pandemic boom, builders also faced obstacles they didn’t last time around, which kept them from overbuilding: supply-chain issues and labor shortages added weeks or months to their construction timelines. Ivory said his biggest concern, however, is affordability.

In the spring of 2022, rapidly rising mortgage rates abruptly slowed buying. Prices in Utah and around the U.S. had risen so rapidly that many buyers were priced out.

“It was the third weekend in May last year, and literally the lights just turned off,” said Ryan Smith, president of home building for Denver-based Oakwood Homes, a unit of Berkshire Hathaway that builds in Colorado, Utah and Arizona. “From there, the fight was on” to keep buyers from canceling.

Ivory Homes had 1,089 homes under construction in last year’s first quarter, including 513 that hadn’t yet been sold. “If I made one big mistake in the way I managed through Covid, it was trying to keep up” with demand, Ivory said. “I should have said to myself, ‘We can’t handle this.’ ”

In the second half of 2022, builders cut prices to attract buyers for their unsold homes or to persuade buyers already under contract not to back out.

Demand rebounded this year in the first quarter. By April, builders forecast a 7% increase in sales for 2023, according to a survey by John Burns Research & Consulting, reversing their forecast of a 9% drop when surveyed in November.

In Daybreak, a master-planned community about a 30-minute drive from Salt Lake City, developer Larry H. Miller Real Estate initially expected to sell 100 to 125 lots this year to home builders, including Ivory Homes. Now it expects to sell 160, according to Brad Holmes, the developer’s president.

“There was no inventory on the existing market, so everybody was being pushed to a new home,” he said.

Ivory Homes has adjusted its building plans to meet current buyers’ tastes and budgets. It is building in a master-planned community called Holbrook Farms in Lehi, a fast-growing city about 30 miles south of Salt Lake City. Lehi and nearby communities are home to the area’s many tech businesses—a major market for Ivory Homes and other builders.

Last fall, Ivory Homes was building three-story homes with three or four bedrooms in Holbrook Farms to sell for up to $625,000. Called E-Villas, they had open kitchens and were targeted at first-time buyers.

As demand slowed late last year, Ivory said, the company decided: “We have to hit a lower price point.” It redesigned the E-Villas to offer a two-story version with three bedrooms, priced below $450,000.

Now the two-story homes are now selling better than the three-story ones, he said.

Builders nationwide are focusing on cutting costs and building smaller homes with lower price tags. Nationally, the proportion of new homes sold in May for under $300,000 rose to 17%, the highest level since December 2021.

Home builders also began offering sweeter terms to buyers. About 52% of builders provided incentives in July, up from 43% in July 2022, according to a NAHB survey. Many builders are paying to lower buyers’ mortgage rates, often by a percentage point or more, to help make the monthly payments more affordable.

Some buydowns reduce rates for only the first few years of a loan, but many builders, including Ivory Homes, are offering to lower the mortgage rate for the life of the loan. The temporary buydowns require buyers to qualify for the highest mortgage rate the loan will reach.

The arrangements benefit buyers and sellers alike. Builders would rather pay for lower mortgage rates than cut prices, because price cuts can affect the value of other homes in the neighbourhood. For buyers, a lower mortgage rate can reduce a monthly payment more than a price cut.

Salt Lake City housing prices aren’t rising at the frenetic pace of 2021 and early 2022. In June, average new-home prices in the metro area fell 11% from the year-earlier period, factoring in the value of incentives, according to a John Burns Research & Consulting survey.

First-time home buyers that tour Holbrook Farms are factoring in a mortgage rate of nearly 7%, according to John Savage, an Ivory Homes sales consultant. With a rate buydown from the builder, their purchasing power can go up by $100,000, he said.

Katherine Luke and Muhammad Salman had been looking to buy their first home in the Salt Lake City area for more than two years. They didn’t find many existing homes on the market within their budget that didn’t need renovations. Earlier this year, they started looking at new homes instead.

“For the price point, it does seem like it makes more sense than trying to renovate an older home,” Luke said. There is more to choose from in the new-home market, she said.

The couple bought a new four-bedroom house from Ivory Homes in early July for about $600,000. They opted for a temporary buydown that reduces their mortgage rate for the first two years of the loan, and they hope to refinance to a lower rate as soon as they can.

“I’m hoping we made the right decision,” Luke said. “I don’t know if it was the right time to buy, but rents keep going up.”

Buyers remain sensitive to small changes in mortgage rates, and an increase in the average to above 7% could slow demand, builders say. The average rate for a 30-year fixed mortgage was 6.96% in the week ended July 13, the highest since November, according to Freddie Mac. A recession, higher unemployment or uncertainty about the presidential election also could spook buyers.

Some regional and local banks have been tightening credit for small businesses, which could also threaten some builders’ ability to borrow money for new projects. And while builders’ costs have come down somewhat, largely due to a big decline in lumber prices, they are still higher than pre pandemic levels. Federal student-loan payments are set to resume in the fall, which could make it more difficult for first-time home buyers to save for down payments.

Yet others who delayed their home-buying plans in 2022 have grown comfortable with current mortgage rates, real-estate agents and builders say.

“People still need a house, because they got married last year, they graduated college last year, and they’re tired of waiting,” said Barry Gittleman, chief executive of Murray, Utah-based builder Hamlet Homes.

And after two years of robust home sales and high margins during the recent housing boom, builders can afford to keep offering rate buydowns to entice buyers.

“We’re all relieved now that we had a really good first half of the year,” Ivory said. “This is not a market to be scared about.”

PARIS —Paris has long been a byword for luxurious living. The traditional components of the upscale home, from parquet floors to elaborate moldings, have their origins here. Yet settling down in just the right address in this low-rise, high-density city may be the greatest luxury of all.

Tradition reigns supreme in Paris real estate, where certain conditions seem set in stone—the western half of the city, on either side of the Seine, has long been more expensive than the east. But in the fashion world’s capital, parts of the housing market are also subject to shifting fads. In the trendy, hilly northeast, a roving cool factor can send prices in this year’s hip neighborhood rising, while last year’s might seem like a sudden bargain.

This week, with the opening of the Olympic Games and the eyes of the world turned toward Paris, The Wall Street Journal looks at the most expensive and desirable areas in the City of Light.

The Most Expensive Arrondissement: the 6th

Known for historic architecture, elegant apartment houses and bohemian street cred, the 6th Arrondissement is Paris’s answer to Manhattan’s West Village. Like its New York counterpart, the 6th’s starving-artist days are long behind it. But the charm that first wooed notable residents like Gertrude Stein and Jean-Paul Sartre is still largely intact, attracting high-minded tourists and deep-pocketed homeowners who can afford its once-edgy, now serene atmosphere.

Le Breton George V Notaires, a Paris notary with an international clientele, says the 6th consistently holds the title of most expensive arrondissement among Paris’s 20 administrative districts, and 2023 was no exception. Last year, average home prices reached $1,428 a square foot—almost 30% higher than the Paris average of $1,100 a square foot.

According to Meilleurs Agents, the Paris real estate appraisal company, the 6th is also home to three of the city’s five most expensive streets. Rue de Furstemberg, a secluded loop between Boulevard Saint-Germain and the Seine, comes in on top, with average prices of $2,454 a square foot as of March 2024.

For more than two decades, Kyle Branum, a 51-year-old attorney, and Kimberly Branum, a 60-year-old retired CEO, have been regular visitors to Paris, opting for apartment rentals and ultimately an ownership interest in an apartment in the city’s 7th Arrondissement, a sedate Left Bank district known for its discreet atmosphere and plutocratic residents.

“The 7th was the only place we stayed,” says Kimberly, “but we spent most of our time in the 6th.”

In 2022, inspired by the strength of the dollar, the Branums decided to fulfil a longstanding dream of buying in Paris. Working with Paris Property Group, they opted for a 1,465-square-foot, three-bedroom in a building dating to the 17th century on a side street in the 6th Arrondissement. They paid $2.7 million for the unit and then spent just over $1 million on the renovation, working with Franco-American visual artist Monte Laster, who also does interiors.

The couple, who live in Santa Barbara, Calif., plan to spend about three months a year in Paris, hosting children and grandchildren, and cooking after forays to local food markets. Their new kitchen, which includes a French stove from luxury appliance brand Lacanche, is Kimberly’s favourite room, she says.

Another American, investor Ashley Maddox, 49, is also considering relocating.

In 2012, the longtime Paris resident bought a dingy, overstuffed 1,765-square-foot apartment in the 6th and started from scratch. She paid $2.5 million and undertook a gut renovation and building improvements for about $800,000. A centrepiece of the home now is the one-time salon, which was turned into an open-plan kitchen and dining area where Maddox and her three children tend to hang out, American-style. Just outside her door are some of the city’s best-known bakeries and cheesemongers, and she is a short walk from the Jardin du Luxembourg, the Left Bank’s premier green space.

“A lot of the majesty of the city is accessible from here,” she says. “It’s so central, it’s bananas.” Now that two of her children are going away to school, she has listed the four-bedroom apartment with Varenne for $5 million.

The Most Expensive Neighbourhoods: Notre-Dame and Invalides

Garrow Kedigian is moving up in the world of Parisian real estate by heading south of the Seine.

During the pandemic, the Canada-born, New York-based interior designer reassessed his life, he says, and decided “I’m not going to wait any longer to have a pied-à-terre in Paris.”

He originally selected a 1,130-square-foot one-bedroom in the trendy 9th Arrondissement, an up-and-coming Right Bank district just below Montmartre. But he soon realised it was too small for his extended stays, not to mention hosting guests from out of town.

After paying about $1.6 million in 2022 and then investing about $55,000 in new decor, he put the unit up for sale in early 2024 and went house-shopping a second time. He ended up in the Invalides quarter of the 7th Arrondissement in the shadow of one Paris’s signature monuments, the golden-domed Hôtel des Invalides, which dates to the 17th century and is fronted by a grand esplanade.

His new neighbourhood vies for Paris’s most expensive with the Notre-Dame quarter in the 4th Arrondissement, centred on a few islands in the Seine behind its namesake cathedral. According to Le Breton, home prices in the Notre-Dame neighbourhood were $1,818 a square foot in 2023, followed by $1,568 a square foot in Invalides.

After breaking even on his Right Bank one-bedroom, Kedigian paid $2.4 million for his new 1,450-square-foot two-bedroom in a late 19th-century building. It has southern exposures, rounded living-room windows and “gorgeous floors,” he says. Kedigian, who bought the new flat through Junot Fine Properties/Knight Frank, plans to spend up to $435,000 on a renovation that will involve restoring the original 12-foot ceiling height in many of the rooms, as well as rescuing the ceilings’ elaborate stucco detailing. He expects to finish in 2025.

Over in the Notre-Dame neighbourhood, Belles demeures de France/Christie’s recently sold a 2,370-square-foot, four-bedroom home for close to the asking price of about $8.6 million, or about $3,630 a square foot. Listing agent Marie-Hélène Lundgreen says this places the unit near the very top of Paris luxury real estate, where prime homes typically sell between $2,530 and $4,040 a square foot.

The Most Expensive Suburb: Neuilly-sur-Seine

The Boulevard Périphérique, the 22-mile ring road that surrounds Paris and its 20 arrondissements, was once a line in the sand for Parisians, who regarded the French capital’s numerous suburbs as something to drive through on their way to and from vacation. The past few decades have seen waves of gentrification beyond the city’s borders, upgrading humble or industrial districts to the north and east into prime residential areas. And it has turned Neuilly-sur-Seine, just northwest of the city, into a luxury compound of first resort.

In 2023, Neuilly’s average home price of $1,092 a square foot made the leafy, stately community Paris’s most expensive suburb.

Longtime residents, Alain and Michèle Bigio, decided this year is the right time to list their 7,730-square-foot, four-bedroom townhouse on a gated Neuilly street.

The couple, now in their mid 70s, completed the home in 1990, two years after they purchased a small parcel of garden from the owners next door for an undisclosed amount. Having relocated from a white-marble château outside Paris, the couple echoed their previous home by using white- and cream-coloured stone in the new four-story build. The Bigios, who will relocate just back over the border in the 16th Arrondissement, have listed the property with Emile Garcin Propriétés for $14.7 million.

The couple raised two adult children here and undertook upgrades in their empty-nester years—most recently, an indoor pool in the basement and a new elevator.

The cool, pale interiors give way to dark and sardonic images in the former staff’s quarters in the basement where Alain works on his hobby—surreal and satirical paintings, whose risqué content means that his wife prefers they stay downstairs. “I’m not a painter,” he says. “But I paint.”

The Trendiest Arrondissement: the 9th

French interior designer Julie Hamon is theatre royalty. Her grandfather was playwright Jean Anouilh, a giant of 20th-century French literature, and her sister is actress Gwendoline Hamon. The 52-year-old, who divides her time between Paris and the U.K., still remembers when the city’s 9th Arrondissement, where she and her husband bought their 1,885-square-foot duplex in 2017, was a place to have fun rather than put down roots. Now, the 9th is the place to do both.

The 9th, a largely 19th-century district, is Paris at its most urban. But what it lacks in parks and other green spaces, it makes up with nightlife and a bustling street life. Among Paris’s gentrifying districts, which have been transformed since 2000 from near-slums to the brink of luxury, the 9th has emerged as the clear winner. According to Le Breton, average 2023 home prices here were $1,062 a square foot, while its nearest competitors for the cool crown, the 10th and the 11th, have yet to break $1,011 a square foot.

A co-principal in the Bobo Design Studio, Hamon—whose gut renovation includes a dramatic skylight, a home cinema and air conditioning—still seems surprised at how far her arrondissement has come. “The 9th used to be well known for all the theatres, nightclubs and strip clubs,” she says. “But it was never a place where you wanted to live—now it’s the place to be.”

With their youngest child about to go to college, she and her husband, 52-year-old entrepreneur Guillaume Clignet, decided to list their Paris home for $3.45 million and live in London full-time. Propriétés Parisiennes/Sotheby’s is handling the listing, which has just gone into contract after about six months on the market.

The 9th’s music venues were a draw for 44-year-old American musician and piano dealer, Ronen Segev, who divides his time between Miami and a 1,725-square-foot, two-bedroom in the lower reaches of the arrondissement. Aided by Paris Property Group, Segev purchased the apartment at auction during the pandemic, sight unseen, for $1.69 million. He spent $270,000 on a renovation, knocking down a wall to make a larger salon suitable for home concerts.

During the Olympics, Segev is renting out the space for about $22,850 a week to attendees of the Games. Otherwise, he prefers longer-term sublets to visiting musicians for $32,700 a month.

Most Exclusive Address: Avenue Junot

Hidden in the hilly expanses of the 18th Arrondissement lies a legendary street that, for those in the know, is the city’s most exclusive address. Avenue Junot, a bucolic tree-lined lane, is a fairy-tale version of the city, separate from the gritty bustle that surrounds it.

Homes here rarely come up for sale, and, when they do, they tend to be off-market, or sold before they can be listed. Martine Kuperfis—whose Paris-based Junot Group real-estate company is named for the street—says the most expensive units here are penthouses with views over the whole of the city.

In 2021, her agency sold a 3,230-square-foot triplex apartment, with a 1,400-square-foot terrace, for $8.5 million. At about $2,630 a square foot, that is three times the current average price in the whole of the 18th.

Among its current Junot listings is a 1930s 1,220-square-foot townhouse on the avenue’s cobblestone extension, with an asking price of $2.8 million.