Tags: Home Building Slows as Housing Bargains Emerge

Home Building Slows as Housing Bargains Emerge

By Michael Carr   |   Wednesday, 18 Apr 2012 08:47 AM

In what is good news for the housing market, the number of new homes that builders started in March dropped 5.8 percent.

At the current pace, about 654,000 new homes will be built over the next 12 months. In the real estate bull market about five years ago, more than two million homes a year were being built.

This decline in building activity is a sign of a healthier real estate market.

Excessive supply and manic levels of buying activity led to the decline. With the Census Bureau estimating that the country forms about one million new households a year, the slow pace of building is leading to a decreased supply.

Lower supply will help the housing market find a price bottom.

Because there are still too many empty houses, home prices can recover without a construction boom. Potential home buyers can also save money by avoiding new homes.

Buyers of existing homes are finding bargains while buyers of new homes are being asked to pay a premium of about 30 percent or more in some locations. The median price of a new home is more than $76,000 above the median price of an existing home. The premium on a new home was about $25,000 in 2007.

Although it can cost less to maintain a new home, the size of the current premium is unreasonable in many markets.

The fact that most consumers are buying existing homes and not overpaying for new homes is a sign that the real estate market is recovering after years of excess.


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