Why You Should Be Happy to Hear New Construction Starts Are Down

Seller, Real Estate News, New Construction

How the Fall in New Construction Helps the Homeowner

AP reports that home construction is down in 2007 by the largest amount in 27 years. They go on to report how horrible this decline is and compare it against other declines in the U.S.

This is Great News for the Homeowner!

There were too many homes on the market. There still are. Market Statistics of the Jacksonville Real Estate Market show that sales have been pretty steady for the past year up until September of 2007. But the numbers of homes for sale has just kept on growing. So it is easy to see that there are just too many homes on the market. But with Builders cutting down on the number of homes they are building then it means we will be cutting down on the surplus of homes on the market that much quicker. Less of a supply of homes will increase demand for the smaller amount of homes available and help prices equalize.

How the Surplus of Homes has Hurt Your Home’s Value

You and your neighbor have your home on the market. You need to sell because you have a new job in another city. You have been marketing your home for two months with no offers from buyers. You reduce your price below your neighbors in order to attract more buyers and get that offer. But as soon as your neighbor notices this they do the same. And thus it continues throughout the neighborhood.

Now this is an oversimplification of what really happens. But it does happen. Buyers have access to all the homes for sale in Jacksonville and they know what your neighbor down the street is selling for and what the interior of the house looks like. They can make a comparison of all the homes in your neighborhood without every stepping foot inside your house. So unless you are competitive with your neighbor you will get little to no activity. Thus it is very important to know what your Jacksonville home’s market value is: what home are selling for and what they have sold at in your neighborhood.

It is Not Entirely the Builder’s Fault

One problem has always been that there were too many new homes on the market in Northeast Florida and the builder kept on building them. While the builders shoulder some blame for not forecasting this downturn in real estate better; they also can’t stop their production on a dime. It is a long process to get a subdivision started and to get a home built. It is a lot of money to do all this. They borrow the money just like any homeowner and have monthly payments they have to make. The only way they make money is by selling the finished product, the home. So it is a hard decision for a builder to decide to suck up the mortgage payments and not build anymore until the market gets better. In fact, some of them can’t and declare bankruptcy or sell themselves to a bigger builder. Furthermore, they have tons of homes in different stages that still need to be completed no matter when they decide to stop building. These homes still need to be completed. So the building industry is more like a huge cruise ship in the seas that takes time to change course then any speed boat. And that is what we have been seeing and will be seeing for the next year or two.