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Housing Starts Down? I Don’t think So!

. <!– @page { margin: 0.79in } P { margin-bottom: 0.08in } The Commerce department in Washington D.C. reported today that housing starts dropped 13 % to a record low in April. The largest contributor was Multi family unit, such as Condominiums and apartment complexes, which were off a whopping 46%. Single family structures were actually up 2.8%. That would help to explain the positive growing home builders sentiment. NAHB, the National Association of Home Builders, housing market index reported numbers in line with expectations and improving over the previous months figures.

As stock futures tumbled this morning on the negative news my first thought was of inventory. Having been in the construction business for twenty years I’ve been through a few cycles. Home builders normally have inventory. Specs are built to have on hand for showing and also “quick” sales. When the economy turns sour and people quit buying builders are stuck with excessive inventory and while those homes sit the banks and utility companies are still expecting their money. Money going out with none coming in is not good.

A smart Builder has made contingencies for this contraction by putting some money aside to carry through the difficult times. As the economy starts to turn around, as I feel it is, Builders will begin to sell off some of this excessive inventory until a point of equilibrium is met. Back on a level field where as many are being built as are being sold. It’s natural then that housing starts would be down. Not really such bad news as long as the other economic numbers are coming in positive or at least above expectations. As an optimist, and not an economist, I think in terms of human nature and business, not just numbers.

So after further examination this morning I read that single family home starts were actually up 2.8% to 380000, the second straight month of improvement. That is really good news for real estate people. Home buyers on the fence still have time to find good deals, but this particular market seems to be improving. Here in the town where I live, Wichita KS, there are lots of prime properties at discount prices.

Multi family buildings dropped from 167,000 to just 90,000. While those numbers are certainly bad, it affects construction more than the Realtor. Residential real estate professionals deal mostly in single family homes. If builders are building again it means that they must be selling off some of that inventory.As demand increases, so will the price of real estate. Home builders have been taking a hit in the pocket book during this recession. Homes have been selling, when they sell, at record low prices just to get rid of inventory. Home builders have been forced to slash prices to stimulate demand. Once that point of equilibrium is reached, and builders are selling as many as their building, prices will almost certainly begin to rise.

The good news is that while builders profits are low, it means buying opportunities are abound.. Good buying opportunities and a chance to buy a new home with built in equity. After a contraction in the economy when the prices of homes and goods in general are sold off at discounts the time to buy is ripe as the recovery begins. We’ve all heard “buy low, sell high”. We seem to be right at or close to that point in this recession. As home prices rise, so will the equity in your new home. Say your Realtor brokers a really good deal for you on your new home. You buy low, maybe really low. As the recovery continues the price of housing will rise quickly. As housing prices rise, your built in equity is like money in your pocket.


May 19, 2009 - Posted by | Uncategorized

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