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Inventory of homes is down, sale prices are up and lower priced homes are being snapped up at a rapid rate. While demand currently exceeds supply on lower priced existing homes there are many factors keeping down new home building.  We shall call these the 4 Limiting L’s of Home Building.  They are:  Lots, Legislature, […]

Inventory of homes is down, sale prices are up and lower priced homes are being snapped up at a rapid rate.

While demand currently exceeds supply on lower priced existing homes there are many factors keeping down new home building.  We shall call these the 4 Limiting L’s of Home Building.  They are:  Lots, Legislature, Labor, and Lending. 

Lots:

New lots and the cost to create this is a major deterrent to new construction.  Many land developers are still recovering from their wounds of the past recession.  Creating big developments with many lots just doesn’t happen anymore.

Legislature:

In a recent NAHB study in 2015 the average cost on a single home due to Federal legislation on housing is over $84,000!  That is a 30% jump from 2011 with 3/5th of that staggering figure on land development with the remaining on home building. 

Labor:

When an industry loses over ½ it’s work force, it is going to take awhile to replenish it.  Construction is especially challenging with a lack of structured training and many skills needed to be honed and developed on the job.  On top of that many young people who are more suited to the trades are discouraged from doing so and instead encouraged to go to college, rack up debt and find a soft labor market. 

Lending:

Although interest rates are historically low, the sheer amount of paperwork required these days to get a loan is staggering.  Few families these days are willing or able to do a bridge loan, which also hurts new construction.  When you add in challenging appraisal rules, new closing statement rules we have made it extremely hard for good people to get a loan. 

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Despite these limitations it still is an excellent time to get a new home.  New homes are safe, energy efficient, interest rates are low, and there is an ample supply of lots; if you can afford them that is.  Consumers can expect to sell their home at a brisk pace as well as get favorable sale price to boot.  The NAHB projects a 14% increase in single-family permits in 2016.  There is reason to be optimistic that housing will continue to grow, that is provided the four limiting L’s don’t get out of hand. 

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