Thursday, September 18, 2008

What's Good for Home Sellers is Bad for Home Buyers

In August, home builders broke ground on the fewest number of homes since January 1991.

It was the 16th straight month in which Housing Starts declined.

Studies have shown that in order to accomodate the increasing number of household formations and the razing of old houses, we need between 1.3 to 1.4 million new homes built per year. We are on line to build less than 1 million.

But, although the press labels these statistics indicative of a recession, home sellers nationwide quietly applaud them.

With fewer new homes coming on the market, home sellers are finding that there's less competition for buyers, helping them to command higher prices for their homes.

It's Supply and Demand in its most basic form.

But that's not all that home buyers have to worry about. The most recent Existing Home Sales report showed an increase in sales nationwide, plus a reduction in the number of single-family homes for sale.

Again, Supply and Demand. Good for sellers, bad for buyers.

However, we should keep in mind that real estate is local. What we see in national and regional trends are not as important as what's happening in your town, your neighborhood, and your street. In San Diego for instance, median prices are still coming down, but lower end homes are experiencing stability and increased sales. A lack of sales in the higher end are showing skewed results overall.

But, if we learn one thing from the chart above, it's this: builders are rational.

If homes won't sell, builders will stop building them. And, sooner or later, the market -- and home prices -- will catch up.

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