Existing home sales stumble, but new home building is flourishing

Sales of previously owned homes fell in June, according to the National Association of Realtors (NAR). The organization says that existing home sales decreased by 1.8 percent, compared with May, and that sales were a mere 0.7 percent above a year ago during the same month.

A record pace

The decline does not portend any coming housing crises. On the contrary, the NAR suggests that the decline is due to a low supply as a result of homes selling at a record pace, and so we are safe for the time being from a repeat of the 2007 housing crisis.

Reports from the US Department of Housing and Urban Development (HUD) appear to back NAR’s analysis, and the HUD and the US Census Bureau reported that new construction of private homes was up an impressive 7.4 percent in June above the May rate, and 5.1 percent above the June 2016 rate.

NAR’s chief economist, Lawrence Yun, said, “The demand for buying a home is as strong as it has been since before the Great Recession.” It would appear, though – by comparing NAR’s statistics with the Census Bureau’s – that buyers are still looking for a bargain.

Affordable home construction

The problem, of course, with pre-Great Recession demand was that it was artificially manufactured by high-risk and subprime lending practices. The collateralized debt obligations drove excessive amounts of capital into the home lending industry, causing a death spiral of even riskier lending.

Today’s demand is not driven by the same dangerous practice but by a combination of economic recovery (slow though it may be) and greater confidence from millennials who are entering the housing market, many for the first time.

“The relative short supply of previously owned homes may push buyers into looking at more expensive new construction, but that does not need to be a problem for buyers on a budget,” said Brian Toolan, a partner at Araquot Partners and co-founder and CEO of The Plan Collection. “The key to affordable new home construction starts with the house plan – and setting a reasonable list of wants and needs. New home plans ranging between 1300 and 2300 square feet tend to be most affordable but can still offer plenty of excellent design elements.”

“The trends we’re seeing this year also give the construction industry an added degree of optimism, although the labor shortage will continue to be one of the industry’s greatest challenges over the next couple years,” said Toolan. “Overall, new home prices will continue to rise over the next few years, so getting into a new home earlier rather than later is recommended.”

Smart and green technologies

In addition to keeping size and scale on the affordable end of the spectrum, Toolan also notes that smart and green design elements will also contribute to lower monthly energy costs.

“While incorporating some of the more innovative smart and green technologies may add a bit of additional cost on the front end, the monthly energy savings could be substantial, so that should be factored into the initial buying decision. Something as simple and inexpensive as a NEST thermostat or LED lighting could substantially cut monthly bills, but bigger investments in things like geothermal heat pumps, co-generation systems, or energy recovery ventilators may take monthly energy costs near zero.”

What all this means for prospective homeowners is that now is a good time to buy, and we can expect modest increases in home value in the coming years.

For those who are investing in building and construction, the news is similarly positive. Although expenses for equipment, supplies, and labor will continue to rise over the next few years, demand will continue to drive higher prices for a better payoff. And finally, the construction industry will see at least a minor boom in new home construction.

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.