In the wake of the housing downturn, construction of new homes fell as builders were faced with a large oversupply issue born from the flow of foreclosed homes.
Sales of new homes have been sluggish in recent years and were forced to compete with existing homes which were often priced less than the cost of new construction.
More recently, new home sales and permits for new construction have been on the rise. The later trend likely reflects improved confidence on the part of builders that the supply of homes has fallen and that the remaining inventory does not meet the desires of potential buyers.
Furthermore, in this tight lending environment, builders must often pony up their own funds for construction rather than rely on loans. This dynamic makes builders particularly keen to local supply and demand dynamics at all price levels. Thus, the rise in permits in 107 of the 163 markets monitored by NAR Research is likely a reflection of improved supply and demand conditions at the most local level.
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Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.