RE:Rise in Housing Starts Unlikely to Begin a New Trend

Scott Johnson — Fri, 16 May 2008 11:00:00 GMT

The rise actually makes a lot of sense for several reasons, a layman would probably make this observation, but the proof is in the pudding, so to speak. Most of the "overage" of inventory is one of two types - foreclosures or short sales. Foreclosures are usually vandalized, damaged, dirty, and the lack of money to make the mortgage payment for quite a while shows up in a lack of money to take care of the house too, so they are usually deficient in many ways that make them unattractive (typically) to the buyers in the market right now - mostly first time homebuyers, who rightly have an image of a great first house, not something missing light switches in every room, the blades wobbling on a ceiling fan, or the garage door opener with a big dent where a drunk homeowner backed into it one evening. The other major camp - short sales, are unattractive to the real estate agents selling them. About 1 out of 15 is actually approved by the lender, they normally reduce the brokerage commissions drastically at closing, and usually will take up to 4 months to close in a 30 day escrow market. Agents work on commission, it is lean times, and it is a "screw that" mentality and just sell something that will close and they get paid on. Most of them won't even show a short sale, and I don't blame them. If you drop the numbers out of the spreadsheet, and go out and actually look at the houses on the market in those two areas, most buyers are going to turn up their nose unless for investment purposes. They also tend to be clustered in very bad areas, places where buyers that have strong credit, income, and a good profile based on their ability to get financing right now - simply are not interested in moving to. If you back out those two types of inventory, and consider that home builders are offering up to 5% commissions to buyer/selling agents in the West to bring in a buyer, and have houses ready to go & close, it is no mystery that the new home starts are rising - simply for a lack of options.