Will builders keep on building new homes? That's a good question as homebuyers in some areas have to get on a waiting list, while in other areas, builders are offering generous incentives on completed homes.

New homes construction starts slowed by one percent in July, but are still on a healthy pace for builders to start construction on over two million homes this year. Yet, some economists worry that the population is only growing by about a million and a half households. Are we building too many new homes, and will they glut the market?

If we're overbuilding, it could be scary, as housing has the potential to harm the economy if it falters.

According to "The Housing Bubble Fact Sheet," a white paper produced by the Center for Economic and Policy Research, housing construction "is equal to approximately five percent of the gross domestic product." Dean Baker, co-director for the Center suggests that with home construction on record paces for the last several years, construction could fall back by as much as 40 percent as it did in the 1981-1982 recession -- a loss that would equal 2 percentage points of the gross domestic product.

Meanwhile, builders say they are building to demand. While housing starts slowed for July, building permits for single-family homes rose a record two percent to an annual rate of 1.7 million. The Commerce Department says home construction has been boosted by strong sales, rising incomes and appreciating home values.

Month-to-month swings in starts and permits data may not be meaningful, say experts. It's far better to look for trends to establish themselves over a period of several months.

If you look at housing starts over the last five months, they are below two million, which should make some housing bubble-blowers breathe a little easier. In addition, new houses are being snapped up by buyers at record rates. In 2004, buyers purchased 1.2 million new homes and are on fire to do the same in 2005.

In June, more new houses were sold than ever before in a single month, leaving new home inventories at about a four-month supply. In more balanced markets, housing can swell to as much as six months on hand without causing any worries. Currently, new homes are outpacing existing homes by a nose, selling about one week faster.

Homebuyers should feel somewhat safe for the time being in buying a new or existing home. As long as the pace of sales remains near historic lows as they are now, they will enjoy moderate to healthy appreciation.

The median price of new homes is about $214,800, 15 percent higher than last year. That's about the same rate of appreciation as existing homes have shown. Existing home prices are at $219,000, says the National Association of Realtors. Even though housing prices are projected to fall through the end of the year, homeowners should still enjoy 10 percent gains in valuations.

Last, but most welcome, was a slight drop in interest rates. It's the first time in six weeks mortgage interest rates have taken a breather -- and that's good news for both buyers and sellers.

Published: August 23, 2005

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.