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New Home Sales A Good Sign For Housing Crunch?

August 30th, 2016

There’s been a dirty word floating around Real Estate the past year now – “crunch”. Maybe you’ve heard people talking about a housing crunch, or maybe you’re one of those buyers who’ve experienced firsthand some of the frustration of the lack of available homes or a bidding war for a property. We’ve written about how low inventories have been, and the role that’s played in driving prices. But wait! There are a few pieces of good news that might be a sign of help to come as we move forward.

First, in recent sales numbers coming from the Commerce Department, new home sales saw a big bump. They actually climbed 12.4 percent over the prior month, to the highest levels in nearly ten years. And while new home sales have been growing strongly all year (up over 13 percent from last year) the big jump in July still marks the best gains since October of 2007.

So why’s this good news for the housing crunch overall? Well, even though it could be argued that new homes are selling more simply because existing home inventories are so low, it still indicates a couple of positives. One is that we are seeing that home builders are slowly but steadily increasing inventories. Without the additional inventories we have now coming onto the market we couldn’t see numbers like this, and that’s good news considering the entire industry has been clamoring for more building for a while now. The other positive factor is that in order to continue to drive more homebuilding, the developers need to see sales. They need confirmation of demand and sales of inventory to spur further growth. The National Association of Home Builders responded to the July sales by saying they believe the increased demand should mean increased production throughout the rest of the year and into next year. And in addition to what was sold in July, homebuilders actually began construction on an additional 114,000 new homes, an increase over last year at this time, and the prior month.

This is great because as the National Association of REALTORS just put it – “how bad is the current supply situation? Consider the fact that we were saying a year ago that inventory was too low. Now? Supply …is 5.8 percent lower than a year ago…” So, yes. We need more homebuilding. And as many have been saying we need more AFFORDABLE homes built. Even though job creation has climbed and income growth is improving, there has still been a lack of affordable entry level homes for new would-be homeowners. But maybe that’s beginning to turn the corner as well. In July the median sales price of a new home was $294,600, which was significantly down from $306,700 in June. Given that prices across all markets have been climbing, this doesn’t indicate values dropping. Rather, it shows that the new homes coming into availability on the market have been priced lower and selling quickly.

So while we’re nowhere near the new home selling peak set in July of 2005, we’re seeing some good signs from the new construction side of the market. Numbers aside, anyone involved in the homebuilding industry will quickly tell you that right now, business is really beginning to boom again. That’s been much needed and hopefully signals more building to come.

If you’re interested in a new home, or how this may affect your house hunt talk to us! Contact us anytime about any of your Real Estate needs!

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