How National Home Sales Adjust the Real Estate Market

Brian Conlon: About 34 years ago, dad, I’m sure this is how you imagined we would grow up.

Kevin Conlon: That’s right.

Brian: So new home sales nationally are down 9.4% in July, which happens to be a seven-month flow. What does this mean, if anything for the real estate market?

Kevin: Well, I think a lot of people are getting more concerned than they need to be about, about that number. If you look at why new homes fell in value, it was because they’re just becoming unaffordable. Builders, as they exited the recession, hadn’t built for years. So the first things they wanted to build were homes that were at higher price points because there’s more profit in those and there was a demand for that product. So that’s what they built. Fast forward the tape. Now we’re in 2017 and we find that people or builders are realizing that, ‘gee, we may have overbuilt a little bit.’ And we see this because the number of months of inventory is now somewhere on the order of just shy of six months.

Brian: what does that mean, the order of inventory?

Kevin: Well, the months of unsold inventory. It’s one of the metrics that the industry uses to kind of track whether there’s a lot of inventory available or not. Because that affects pricing and it’s a measure of how much demand is chewed into supply and so forth. So, the median price of new construction Rose, uh, gosh, it’s probably the highest it’s ever been. As far as I can recall. It’s up up around a $314,000. And that’s a lot higher than the average price of a existing construction home. Those are, the median price there’s a just a little south of $260,000. But that price is just not affordable for a lot of people. And so that caused demand to a fall because people couldn’t afford to buy it. So I don’t think you’re going to see as many new construction starts at the higher price points.

If you look at demand overall for residential real estate, there’s a lot of demand for affordable real estate. So I think you’re going to see some of the builders start shifting their attention to some of the more affordable price points so that they can provide affordable inventory that will move and turn over very, very quickly. So I really think that’s all that happened here. And I believe, if you’re an investor, it’s a good opportunity. As builders start building these more affordable homes, those become more – well, they’re better investments for people. Because at the lower price points you tend to get more rent for every dollar worth of real estate that you buy. And if you have an opportunity to pick up something that’s brand new, it’s going to have lower maintenance expenses and it could wind up being a pretty good investment. So I think if we roll into next year, we may see a good opportunity for investors that are buying some of those less expensive new homes.

 

Kevin Conlon – Principal & Co-Founder || Brian Conlon – Business Development