By Michael Douville – Housing Industry
Builders across the nation have slowed construction to a pace not seen in 60 years, a time in which the US population was about half of what it is today. Although there still remains an existing unsold inventory comprising a surplus of between 11-11.5 months of new homes, the supply is finally shrinking. Although the residential real estate market is still very fragile, the supply-demand equation is balancing. Builders have been suffering for two years after all, lowering prices and giving huge incentives to current buyers to sell inventory.

In the boom years of 2005-2007, builders acquired land for future development to replace the land that was being used at a furious pace. Most consumers are not aware of builders’ “land banks”; however, this acreage represents economic liability even in good times. Generally the interest accumulates and is capitalized in individual lots, adding to sales price increases as developments are sold out. In uncertain times, the interest must be paid in installments, adding to cash flow concerns. Experienced building companies placed their land and lots on the sales market at huge discounts to remove the liabilities from their balance sheets; those that did not sell out immediately after the slowdown was evident have been forced to build their way out of their land. Over the past few years, there has been a consistent supply of new “spec” homes coming to market, replenishing the inventory. The available supply of homes has stubbornly remained at elevated levels. However, many signs point to much lower inventory levels in the coming months helping to stabilize the housing industry. Continue reading →