Real Estate Supply And Demand Not Friendly To Home Builders

Posted by Joe Manausa on Friday, January 28th, 2011 at 8:26am.

Real estate supply and demand figures are stifling home builders in their attempt to re-enter the housing market in Tallahassee.

Real estate supply and demand figures are stifling home builders in their attempt to re-enter the housing market in Tallahassee. Even after coming off of two years of historic lows in new home starts, home builders are finding that the market is still way over supplied with inventory from existing home sellers.

This post contains three real estate graphs that show the dilemma that home builders are facing. The first two chart building permit and sales relationships for single family detached homes, while the third graph displays the current months of supply of homes for sale in Tallahassee.

Single Family Building Permits And Sales

Sadly, the real estate graph above shows the severity of the fall of new home construction in Tallahassee. We know single family home sales (and thus production) will remain very low until we see a turn in home buying activity in Tallahassee.

The same data that created the real estate graph above is presented in a different manner below, showing the market's two-year shift to consumption in new home inventories. This means that we are seeing more new construction selling than being built (a reduction in supply), and this is a good thing.

Tallahassee Single Family Building Permits And Sales Image

This would normally indicate positive signs for home builders, but we have to look at the entire market in full (meaning we have to look at existing homes as well) before we can truly assess the demand for new homes being built. This next graph measures current inventories at the current rate of demand, showing the months of supply of homes for sale in Tallahassee.

Real Estate Supply And Demand Graph Image

Unfortunately, what we see is that every single price range has more homes than the market can absorb with our current rate of demand. A housing market is considered balanced (or at equilibrium) when the supply of homes is measured between five and six months. In the real estate graph above, we see all price ranges are above eight months of supply, indicating the market is heavily shifted towards a buyer's market, and by continuing to measure Tallahassee real estate supply and demand, we will know when to expect the resurgence of the new construction market in Tallahassee.

Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.

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