Insights On Today’s
Challenges to Homeownership
Insights On Today’s
Challenges to Homeownership

Factors Impacting Home Prices

Posted: December, 5, 2017

We were asked recently what are the greatest factors impacting home prices in today’s market. With a focus on new housing, here’s what we see:

The big "impactors" that move the needle on home prices are primarily time, fees and delays. In markets where we operate, the regulatory process in each jurisdiction is equivalent to playing football, with the end zone constantly moving away from you no matter how many yards you gain in each play.

We can expand further, but to keep it simple the three big things are…

  1. TIME:  There’s a lack of manpower in the construction trades.  Home builders do not have enough skilled people to build houses, so they are all fighting for the same tradespeople. Therefore, lack of supply and high demand is driving up costs.  Pretty simple, and it is not going to change soon, no matter what anyone says about innovation and AI.
  2. FEES:  Our State, County and Municipalities are budget challenged, and must keep raising their fees for affordable housing, school fees, transportation, inspections, etc.. These cost increases are being directly passed on to the home buyers.
  3. DELAYS:  No-growth is popular during housing booms, and Pro-growth is popular during Recessions.  Right now, we are in the No-Growth portion of the cycle. As a land supplier we must plan and mitigate for impacts from a proposed project. Messaging based upon lack of knowledge and false information can cause delays in the process and force compromises of the plan just to keep the process moving. This ultimately can impact time and the certainty of entitlements.
     

The resulting lack of new home inventory that plagues the market today is further fueled by falling levels of existing home inventory, a double whammy on the price of housing. As prices rocket upward, people tend to stay in place as they don’t want, or can’t afford, to take on increased taxes or the higher payment on a new purchase. The National Association of Realtors reports sales of existing homes over the past 12 months dropped, with 121,600 fewer homes on the market (Los Angeles Times, November 18, 2017; “Home building up 13.7% in October”). This lack of movement in the existing home market translates to impacts in the new home market, and pricing rises across the board.

Highlighting these issues, this Los Angeles Times article goes on to state “the building of new homes has done little to alleviate the growing shortage of existing homes for sale.” The article continues, that while recent reports on home construction state homebuilding was up 13.7% in October nationwide, in the Western US construction fell 3.7%. 

On November 28, another LA Times article (“New home sales, prices surge”)  reported “The average price of a new home jumped 13.6% over the past 12 months to $400,200 (nationwide).” The article further states, “Many buyers are turning to new construction because there is a shrinking supply of existing homes for sale. But new construction has been unable to keep up with demand.”

The winds may be shifting on public opinion for new housing though, however slight. We are beginning to see an increasing awareness among the Millennial Generation, and others, to bring more opportunity for reasonable housing solutions to the market. This new chorus of voices is forming a more organized approach to make their voices heard. In the Bay Area, one group has taken the moniker YIMBY, Yes In My Backyard, and they are making waves. You can read more about them here. Perhaps, as more community members hear their message, and recognize the need for housing of all kinds, they will become more open to collaboration to solve the housing crisis. The solution will not be achieved in just one area, but needs to be reached through recognition of the many factors affecting home ownership and home building. We are resolved to be a part of that collective body to address the need in a sustainable and effective manner.

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