Posted in In The News, National Housing Market | Posted on 11-13-2012 | Written by Mike Castleman Sr.
Every quarter, we conduct a National Housing Audit, the most recent of which was completed between October 1 and October 15 of this year. We inspected of more than 4 million subdivision lots, in over 40,000 subdivisions, in the primary housing markets in 19 states. The audit showed that the Annual Starts pace for single family detached homes increased in 38 of the 40 markets included in the study, when compared to the third quarter of 2011.
One of our most important findings is that these markets experienced an increase in housing production in the lower price ranges. While this production increase caused the mix of home prices to change, most markets saw an increase in the Median Price. The bottom line is that home prices are rising and housing production is growing.
In this market, there are two basic reasons for increases in housing production. The first is that, as builders liquidated their excess Finished Vacant Housing Inventory, that was left over from the bubble in 2007 & 2008, there was no need to build houses, so housing production was artificially low. Once this excess inventory was sold, builders had to “ramp up” production, just to meet the extremely low demand in 2011. The second issue is a tremendous amount of pent-up demand in the rental market. This demand has been accumulating for 5 years. Now that home prices are beginning to rise, some of that pent-up demand in beginning to migrate back into the single family for sale market.
Throughout the country, Finished Vacant New Home Inventory has declined steadily to a point where the aggregate number has fallen to 2.2 Months of Supply, which is below equilibrium. This lack of supply increases the pressure on builders to increase prices and to start more homes, which means buying more lots. Unfortunately the home building industry has consistently delivered only about 100,000 new developed lots per year for the last 4 years, and this lot delivery pace is not supplying the new lot count needed to meet demand in 2013 and 2014. The builders that will perform the best in 2013 and 2014 are the ones with access to an adequate supply of quality lots. Today, most builders lack the inventory needed to sustain the current growth pace.
Also See: “Housing is indeed heading higher”