Richmond Home Construction Slows. Which is a Good Thing.
Yes, you read that right.
New home construction has plummeted in the Richmond area, but David Lereah, chief economist for the National Association of Realtors, says that’s very good news for the long run.
“You want to see construction activity down when real estate is contracting so much,” Lereah said while in Richmond last week. “When the market picks up, it will be that much healthier without a bunch of unsold inventory.”
“Richmond got caught a little in the contraction. It did have some boom. Sales are down. But still, Richmond is looking much better than most areas of the country.”
Job growth in the Virginia city is good. People are migrating to the area. And Virginia mortgage costs, while high, remain relatively affordable compared to some of the nation’s overheated markets.
“The business community is okay, not robust, but it is still a good, local environment for real estate.”
Lereah said it appears 2007 will pan out to be a modest year for growth in the Richmond area real estate market, “which is very good, because the rest of the country is still sluggish.”
That said, the Virginia housing market is not Texas.
Texas missed the boom, so demand is strong there and more housing is affordable, Lereah said. About 75 percent of the country is expanding like Richmond, while 25 percent continues to experience a contraction.
Struggling areas include cities in California, where properties are too expensive for most households, as well as central and South Florida.
“Sprinkle in Vegas, Phoenix, all the boom cities and all the resort towns on the East Coast; they still need a price correction.”
Richmond could be counted among Houston, Dallas, Santa Fe, N.M. - “even Boston and Long Island,” he said. All are showing signs of expansion.
Due to abnormally low Texas mortgage costs, cities in the Lone Star State will do better than Richmond. Richmond will do better than Washington.
“It looks like we have bottomed out or we are close to the bottom for the country as a whole.”
A healthy balance of inventory is a 5 ½- to 6 ½-month supply of houses for sale, Lereah said. For that reason, the national decline in housing starts - a factor that limits the growth of inventory temporarily - isn’t all bad.
The national inventory of unsold homes was 7.3 months in July, meaning it would take that long to sell all the houses. It dropped to 6.8 months over December, showing overall improvement in the housing market.
During the contraction of 1989 and 1990, the nation had 9.4-month supply of unsold houses. In 1981, the supply was 12 months.
“The contraction was a lot less difficult this time around. For the doomsayers to say the market is crashing or the housing bubble will burst, it’s just not true,” said Lereah.
Lereah said he expects traditional investing in real estate - by those who want to buy, live in and hold (rather than try and flip) properties - to get back into the market in 2008.
Speculative investors, who got into the market to make a fast dollar, turned the recent boom into a frenzy.
“When lenders offered exotic mortgage loans, that was fuel for the fire.”
Lenders have scaled back on those loans. Speculative buyers have backed out. And the market continues to correct - in some places, more than others.
SOURCE: Richmond Times-Dispatch