Rising Construction Costs
Could Offer Offset to Softening Real Estate Market But Could Hurt
Affordable.....
By: calbuild
Rising construction costs could offer a
long-term offset or buffer to the softening real estate market and falling
home prices.
Housing prices have more than doubled in most regions, but construction
costs have risen as well. In many instances material costs have doubled and
even tripled, so it may cost twice as much to build that house as compared
to what it might have costs ten years ago.
If the median and average selling price of a home continues to decline, then
construction of new homes will fall dramatically. Why? Because rising
construction costs and falling housing prices will squeeze builder’s gross
profit margins forcing them to postpone many future projects.
Subsequently, demand for housing at certain price points which allow
builders to earn a reasonable profit will have to catch up with supply
before builders resume development. This theoretically would keep the supply
of housing in check, thus dampening the possible fall in prices.
This may offer some comfort for those who already own a home and fear how
low prices might fall, but it won’t help those who already can not afford to
buy a home of their own. Rising construction costs ultimately put a damper
on any efforts to provide affordable housing. There are a lot of potential
home buyers that might create demand for housing at various lower price
points. But the market may never get to those lower price points.
Construction costs could just remain too high and other market conditions
alone may never create enough affordable housing.
So it is not a lack of demand for housing that is putting a damper on the
real estate market, but a lack of demand at current prices that is putting a
damper on the real estate market. There is plenty of demand for housing;
just for more affordable housing.
Please note that there are many other variables that affect the housing
market, such as 1) interest rates, 2) inflation, 3) expenses associated with
maintaining a home, 4) economic growth, 5) employment, 6) supply versus
demand and 7) general public sentiment.
Link: www.RealEstate-Calc.com
Rising construction costs could offer a long-term offset or buffer to the
softening real estate market and falling home prices.
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