Stymied by high prices amidst weak job and wage growth, new home construction fell dramatically in June.
This wasn’t supposed to happen. Reflating the housing bubble was supposed to lift distressed loanowners above water, stimulate building (and construction employment), and create “escape velocity†in the housing market. Economists had it all figured out, and they advised policymakers to stimulate housing at all costs. Instead, high house prices made housing unaffordable to marginal buyers, and caused sales volumes to plummet. Since builders can’t sell homes, they aren’t building them, and they aren’t hiring construction related trades, so the sought after economic boost isn’t happening. So why did it turn out this way?
The new mortgage regulations changed how real estate markets work. The new mortgage regulations will prevent future housing bubbles (we hope), but we witness the success of these new regulations by an unanticipated change in housing market behavior: high prices are hurting sales volume. The conventional wisdom among housing economists states that rising house prices creates “escape velocity†because potential homebuyers become more motivated to capture appreciation and for fear of being priced out. As a result they compete with one another and drive prices higher. Kool aid is eternal, so the motivation exists, but the key enablers (lenders) of this foolish buyer behavior can’t play their usual games because the new mortgage regulations curtailed affordability products.
invite response
http://ochousingnews.com/blog/new-home-construction-plummets-june-2014/
Stymied by high prices amidst weak job and wage growth, new home construction fell dramatically in June.
This wasn’t supposed to happen. Reflating the housing bubble was supposed to lift distressed loanowners above water, stimulate building (and construction employment), and create “escape velocity†in the housing market. Economists had it all figured out, and they advised policymakers to stimulate housing at all costs. Instead, high house prices made housing unaffordable to marginal buyers, and caused sales volumes to plummet. Since builders can’t sell homes, they aren’t building them, and they aren’t hiring construction related trades, so the sought after economic boost isn’t happening. So why did it turn out this way?
The new mortgage regulations changed how real estate markets work. The new mortgage regulations will prevent future housing bubbles (we hope), but we witness the success of these new regulations by an unanticipated change in housing market behavior: high prices are hurting sales volume. The conventional wisdom among housing economists states that rising house prices creates “escape velocity†because potential homebuyers become more motivated to capture appreciation and for fear of being priced out. As a result they compete with one another and drive prices higher. Kool aid is eternal, so the motivation exists, but the key enablers (lenders) of this foolish buyer behavior can’t play their usual games because the new mortgage regulations curtailed affordability products.
Source: http://ochousingnews.com/blog/new-home-construction-plummets-june-2014/#ixzz38mB9n2ho
#housing