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How’s the Market? July 2017

Posted by Martin Healy on 03/07/2017
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The Supply and Demand Problem Plaguing New Construction

Many real estate economists have called on new home builders to ramp up production to help relieve the shortage of inventory of homes for sale. The added inventory would no doubt aid buyers in their search to secure their dream home, while also helping to ease price increases throughout the country.

Unfortunately for builders, there are many forces that are making it difficult for them to do just that.

The concept of supply and demand is ripe in the new home construction industry.

Lets dig deeper:

  1. The Great Recession forced many skilled construction and trade workers to find other sources of income once their jobs were lost at the time of the crash.
  2. There is a shortage of sites and land to build.
  3. The cost to build a new home is directly tied to the cost of the site and the cost of the supplies needed to build the home. The cost of building supplies continues to increase.
  4. Banks are only beginning to loosen the purse strings. Tougher lending conditions have made it more difficult and more expensive for builders.

Bottom line: At present it only pays a builder to build luxury homes as they have a better margin. Until the government actively get involved in supplying housing then the supply end of the equation will remain depressed.

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