New Home Starts a Predictor of Real Estate

No matter where you find your real estate news, this year is about continued increases in home prices, bidding wars between home buyers, and home value appreciation we have not seen since the mid 2000’s. The reason for the increase in home prices is directly contributed to a low supply of housing.Price increases as supply decrease and demand remains constant. In today’s real estate market price is increasing due to a constraint in supply, the number of homes, but that will not last. Markets move to equilibrium. As home building companies generate record profits they will build more homes and new homebuilders will join the market.

No better metric illustrates a move to market equilibrium than new single family permits and single family new construction starts. As you can see from this chart, new home construction starts is at 781,000 and continues to increase. Although the leading indicator is nowhere near the 1.7million home starts in 2005, we can expect new construction permits and construction starts will continue to increase until supply is more in line with demand. My prediction is the market will start to cool as interest rates near 6percent and new construction starts reach 1.0 million single family homes.

In the meantime, if you are a real estate professional now is the time to focus on increasing your listing business. Home buyers are great but in a home seller’s market, the listing agent has the upper hand in negotiations getting their clients top price and terms that meet their needs.