New construction is on fire but will this new building boom crush the current housing rebound?
All stats seem positive for the home building industry and new homes and condos are selling incredibly well in some areas of the country with great pre-sales and order numbers being reported by developers but some may wonder if flooding the market with more inventory right now is a smart move.
What the most recent digits reveal:
- The Census Bureau reports housing starts hitting a 4 year high in September 2012
- Housing starts were up 15% from August to September 2012
- New housing starts climbed an average of 35% year-over-year as of last month
- The rate of new housing starts is up 82% from the low of April 2009
- The National Association of Home Builders reveals builder confidence hit a 6 year high this month
So will this massive surge in new inventory soften the housing market and drag it back underwater and do these properties make good deals for real estate investing?
On the contrary, new homes mean higher home prices, especially as many areas are seeing re-sales currently priced well below build cost, which also offers tasty spreads for those flipping houses.
Some markets may still have a lot of inventory but that isn’t where builders are focusing on development. In fact, cities like San Diego could really use more new construction to fill demand and keep up the current rapid increase in home prices.
In fact, while new homes will help price increases, more inventory and more balance in the market will help prevent another housing bubble.
However, although new luxury homes and condos have been a popular by with some real estate investors this year, most of these projects are iffy and completely speculative at best and are not the regular domain of hungry real estate investing veterans. Unless a second or third phase with price increases is ‘guaranteed’ profit is all built on hope and even promises like these don’t mean they will pan out as seen in 2006.
Besides, new construction, especially pre-construction often delivers a terrible ROI, even for builders when compared with other real estate investment options and flipping houses.
