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Wanted: More New Homes

Written by on Tuesday, 19 February 2013 6:00 pm

You gotta wonder what's holding up builders from reducing the shortage of homes for sale.

Other than mortgage banks letting go of any so-called shadow inventory, only new homebuilders can help fill the gap.

Existing owners aren't about to come to market to sell in droves until they can see enough appreciation to give them a profit from equity.

Even then, the jitters the last recession heaped upon many homeowners will keep them off the market longer than normal after a downturn.

More new homes could help put further upward pressure on existing home values and hold down the rise in prices.

Unfortunately, new homebuilders held only 7 percent of all home sales in 2012. While that's the first increase in the share since 2005, over the past 20 years, new homes have accounted for 13 percent of total home sales, according to John Burns Consulting's report "If You Build It, They Will Come: Growing New Home Market Share," penned by Rick Palacios Jr. and Ali Wolf.

However, burns says the 20 percent increase in new home sales was more than double the 9 percent increase in resale sales in 2012.

That's good news.

John Burns Chart: Annual Increase in New, Existing Home Sales

Burns said the greater sales increase by new homes is shaking out as different from the 2001-2005 boom when sales increases from both new and resale homes moved more in tandem.

That's because the new home market was hit harder than the resale market, which suffers all the foreclosures.

  • The economy stunted new home growth as debt and equity capital for new home construction became more difficult to obtain than a new mortgage, according to Burns.

  • Also, many homebuilders closed up shop as the bottom line hit rock bottom turning many companies unprofitable.

  • New home building land, typically in outlying areas, also got hit harder during the downturn, Burns reports.

    Coming to the rescue are more publicly traded homebuilders who have greater access to capital than the private sector.

    "Publicly traded builders have raised low-cost, unsecured, non-recourse debt that matures many years from now, while most private builders can only borrow from banks on a secured, recourse, short-term basis," according to the report.

    Burns says increased market share for new homebuilders is likely for 2013 due to several pressing factors.

    New home growth expected

    Age - The median age of the nation's housing stock is 39 years with the majority of the homes more than 10 years old.

    Negative equity - 10.7 million homeowners who purchased homes during boom times are still underwater on their mortgages and cannot sell.

    Home prices need to continue to appreciate in order to bring those homeowners above water enough to entice them to list their homes to at least break even.

    Even then, given the fear of the last recession, many homeowners will hold onto to what they've got for some time to come.

    Short supply - Major housing markets have less than three months of supply of homes for sale. That includes Austin, Denver, Los Angeles, Orange County, Orlando, Phoenix, San Diego, and Seattle.

    Other metros, including, Sacramento, San Jose , and Oakland, have less than one month of supply. A seven-month supply is the historical average, says Burns.

    Certainly then, if new homebuilders build them, buyers will come - if today's demand is any indication.

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      About the author, Broderick Perkins

    Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.