Viewpoint: Why No New Houses May Be a Good Thing

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The news that 2011 may go down as the worst year in the past 50 for construction of new homes brought out many a weeping violin. Sorry, the strings on mine must have popped.

Yes, I understand that construction jobs — the ones that are created when builders build new homes — are a good thing for the economy. But the dark cloud of no new houses being built may have a silver lining: No new homes means less competition for existing homeowners trying to sell.

Have we forgotten the economic rule of supply and demand? When the supply is smaller (no more new houses), the demand increases (for existing houses). When the demand increases — especially coupled with record-low interest loans — home values increase. Equity builds in existing homes, fewer people are upside down on their loans. People feel like they can spend again. Remember the old adage about land, how they aren’t making any more of it? Now apply it to houses.

Without the option of shiny new faucets and developers promising low-interest adjustable rate loans that got so many people in financial trouble in the first place, what exists of the homebuying public will be forced to focus its attention on the resale market. Surely with so many short sales and foreclosures out there — not to mention desperate sellers who just need to move — people can find something to their liking.

And stimulating sales of the comatose existing-home market also is a job stimulant, albeit different jobs. It creates work for home inspectors, termite-treaters, appraisers, real estate agents and others in the home transaction pipeline.

And what do new homeowners do if not immediately rush out to call contractors and remodelers? They visit Home Depot, shop for new couches and carpets, put in a swimming pool or refinish the kitchen cabinets. The first impulse of a new homeowner is to put their stamp on the house, making it theirs. Whether it’s as simple as slapping up a new color of paint or putting up a ceiling fan, they spend money on their new baby. And that stimulates the economy.

Don’t believe me? In 2009, new homeowners (those who have owned for two years or less) spent an average of $10,465 on home improvements, compared to $8,532 spent by those who have owned longer, says a Joint Center for Housing Studies report.

Inventory levels are flush in the resale market. Homes stay on the market for ages. Maybe the key to leaving the recession in our rear-view mirror has been in moving the excess housing market all along instead of worrying about how to create more of it.

Your thoughts, readers?

(The photo at top shows a housing development in Rio Vista, Calif., where work was halted in 2008.)

Also see:
Viewpoint: What’s Behind Banks’ Big Foreclosure Push?

Viewpoint: Hey Mr. President, How About Housing?

Million-Dollar Foreclosures, Just Bring Your Checkbook

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