New Construction Supply and Demand Experiencing Shift

Anyone who has recently considered purchasing a newly-built home can attest to the price plunge that has been in effect for the past several years. That’s because of the basic laws of supply and demand. With an excessive number of new constructions on the market, builders have been forced to lower their prices just to keep from sitting on an egg that wasn’t going to hatch anytime soon. Many who refused to budge on price significantly reduced their output, or went bankrupt trying to wait out the sliding market while sitting on huge inventories. There simply was not enough demand to allow builders to wait for a buyer willing to offer the right price.

However, the market for new constructions is likely to soon experience a dramatic shift. The number of building permits being issued has been decreasing over the past two years, therefore the number of new homes hitting the market has been falling. As demand begins to increase once again, even if slightly, there may be a shortage of new homes on the market as opposed to the excess that has driven many builders into bankruptcy. A recently article in The City Paper states:

According to figures from MarketGraphics, new home move-ins already have started exceeding construction starts. In Davidson County, there were 2,834 homes started in the last 12 months while buyers moved into 3,118 units, a difference of 284.

Having adjusted their business pace through the slowdown, builders at first may not be able to serve up the orders at the rate they arrive. This reverse of supply and demand could indicate a future price spike for new constructions. Builders look forward to this turn in the market, but buyers should be aware that if looking to purchase a new home, it may be advantageous to buy before this shift reduces the availability of low-priced new constructions.

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