Home Builders find Opportunity to Raise Prices, Finally!

Posted by: BIA Bay Area on July 8, 2013

Over the past few years it’s been no secret that selling homes were home builder’s main concerns, raising prices was often out of the question. Now, as the economy normalizes and home building picks up, builders have the opportunity to slow starts and raise prices.

CNBC reports that “home builders took a big jump in May against a backdrop of flat single family starts.” And why, “[because] they have pricing power.”

California, notably, is feeling the supply pinch quite dramatically where there was a period in May with barely any homes for sale. That alone pushed the median sales price up 32% from one year ago. CNBC reports that while some may call that a “bubble”, sales agents do not.

“While home prices are increasing at levels above those observed in 2006-2007, the fundamentals of the housing market are much more solid than what we experienced a few years ago,” said Leslie Appleton-Young, chief economist for the California Association of Realtors. “More home buyers are putting down larger down payments, and many of them are opting for more stable loan products.” (CNBC)

The amount of resale homes are decreasing which drives consumers to look to builders for new homes. The decrease in supply allows builders to drive up prices with little impact on buyer demand. “The recovery has been very concentrated in the best areas. The builders are deliberately metering out their sales pace and metering out their land because land is so precious. This isn’t a recovery in the outskirts and the periphery where you would see more volume growth as we move forward,” UBS analyst David Goldberg said in an interview.

Demand is in favor of builders just in home availability alone. While the market seems to stabilize, new home sales are still strong.

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