Home Builders Tough It Out
Damned if you do, damned if you don’t. Such is the situation for Tallahassee home builders. To make a living (and feed their families) they must build more homes. But for builders to see great times again, they need to see the housing market return to a balance of supply and demand.
The glut of homes on the market in Tallahassee is causing values to drop and the building of more homes will only increase this pressure. Note in the graph below, that new home prices have fallen below resale prices. The blue line in the graph below represents the average price of new homes, while the red represents the average price for existing home sales.
We can observe that for the previous 18 years, new home values always “lead” existing home sales (resales). Today, we are seeing some builders take advantage of lower land prices and building homes to find a niche in the current market. This means that while existing homes for sale in the neighborhood have not yet factored in fallen lot values, the builder is able to provide a newly built home below the resale asking prices.
This practice by builders is letting them work through an inventory of unwanted lots, but it will wreak serious long-term havoc on the housing market. The continual adding of new homes to a market already saturated with inventory is going to send home values plunging at an even faster rate, making it tougher for builders to provide inventory in the future.