Plunging Housing Starts Is Bad News For Home Buyers

Housing Starts fell to 791000 in October 2008

When it comes to housing data, there are always two questions to consider:

  1. How does this impact buyers?
  2. How does this impact sellers?

This is why housing data is rarely positive or negative on a universal level — one group of Americans is going to see benefit.

Today, it’s home sellers.

From the government, we learn that Housing Starts fell to their lowest levels since 1947 last month.  A “Housing Start” is a new housing unit on which construction has started.  Building permits are down, too.

This is all good news for people selling their homes in the coming months.  As fewer homes are built nationwide, there is less inventory from which home buyers can choose.  With fewer homes for sale shifts the supply-and-demand curve, adding a stronger support floor to home prices.

For home buyers, though, the Housing Starts data may not be as welcome.

With fewer new homes coming on the market, owners of “used” homes may feel less pressure to lower asking prices or to make other concessions.  Home buyers often pay more when home supply is falling, or find that sellers are less willing to add “throw-ins” to a contract.

For all of the analysis that surrounds real estate data, in the end, home prices are based on the supply of homes versus the demand for homes.  When supply outpaces demand, home prices fall, and vice verse.

Homebuilders know this and October’s Housing Starts data reflects it.

(Image courtesy: The Wall Street Journal)

Post