Builders’ Response To Decreased Home Supply

Builders' Response To Decreased Home Supply

The real estate market has seen home sales decrease drastically this Spring. The weather in the Northern Midwest and Northeast was a big contributor. For the past twenty consecutive months, home sales have been low. In order for sales to rise, there needs to be a supply of homes. However, homeowner turnover and new construction have not been driving the market as they should. Part of this is due to the number of homeowners that are still underwater. The number of Americans that owe more on their mortgage than their home’s worth is 6.3 million! This alone is enough to scare individuals away from entering the market.

New construction has been slowing for many years as indicated by the disparity between the number of new jobs created and new homes created. While not every new job will result in a new home, this methodology is still fairly useful in determining the impact of construction on supply. The consequential decrease in supply relative to increased demand creates  price pressure. States in which job creation have been strong, such as California, Florida, Montana, Utah, and Indiana, demonstrate the biggest disparity. The states with the lowest supply will likely see the steepest price increases.

Builders’ response to the decreased inventory is to increase plans for construction, especially in states with a non-judicial foreclosure protocol. However, the response needs to be stronger in order to prevent high prices for consumers. For any questions about the current real estate market, please contact The Zwahlen Team who will be able to help you with all of your needs!