Will New Home Construction Ever Restart?

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For builders and contractors, staying attuned to the dynamics of the real estate market is crucial. The specter of the 2008 real estate crash looms large in the memory of many industry professionals, making them cautious about the prospect of building new homes. As we find ourselves in 2023, questions about the direction of house prices and the demand for new construction linger. This blog post aims to unravel some of the complexities surrounding these concerns and offer insights into the current state of the real estate market.

The Pendulum of Predictions

The housing market is often subject to various predictions, with opinions on whether prices will rise, fall, or remain stagnant. A financial institution’s forecast suggests that housing prices may bottom out in early 2023, prompting speculation about the market’s trajectory. However, the focus on house prices alone doesn’t address the critical factor of transaction volume—who will be buying houses, and are there enough willing sellers?

The Hidden Realities

1. Housing Shortage:

Despite fluctuations in prices, experts highlight a persistent shortage of homes. The demand-supply gap indicates that there are still five million more people in need of houses than the current inventory can accommodate. Whether prices rise or fall, this shortage remains a constant.

2. Volume of Sales:

The volume of home sales is a pivotal factor. Whether buyers are transitioning from rentals to homeownership or engaging in the cycle of selling and buying, the number of houses available doesn’t change. This musical chairs scenario impacts the market’s equilibrium.

The Dilemma for Builders

1. Financial Prudence:

Builders are understandably cautious, given the historical context of the 2008 crash. Financial prudence is essential, and the decision to engage in new construction involves a careful consideration of risks and potential returns.

2. Demand and Supply Stalemate:

The current housing market may witness a stalemate between buyers and sellers. With the median price of a house hovering around $416,000, the average mortgage payment has significantly increased. Both buyers and sellers may be hesitant to act, creating a potential impasse in the market.

3. Alternatives and Equilibrium:

The availability of alternatives plays a crucial role. For sellers, the question arises: If you sell your house at a lower price, where will you move? Rental prices often align with mortgage payments, making the decision to sell less enticing. The equilibrium between buyers and sellers could prevent a significant crash in housing prices.

Navigating the Future

For builders and contractors, the uncertainty surrounding the real estate market requires a strategic approach. Focusing on remodels, additions, and commercial tenant improvements might be a more viable avenue in the current landscape. Whether prices rise or experience a correction, the transaction volume might remain modest, and the resurgence of new home construction may take time to materialize. Navigating this nuanced environment calls for adaptability and a keen understanding of the ever-evolving real estate dynamics.

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