In the recent years, early forecasts of the falling demand for housing are being made. It seems that this was due to the oversupply of houses due to the inaccurate use of the builders’ speculations about it. While they continue to build houses at an increase rate, the demand for housing seems to be not favoring them. A lot of reasons are being made but still they cannot try to figure out the real reason behind it. As the situation continues, a lot of builders not are thinking twice on what actions to make to solve the issue.
Let us try to look back to the past events to figure this out. During the second half of the year 2005, supply of houses, particularly of new single-family houses is growing at its fastest pace since the middle of 1980s. However, the sales seemed to be not cooperating. It had been gradually slowing down. This made the builders to make some little adjustments to address the issue. Same case happens with multi-family buildings. It is said to be even worse since vacancy rates are at its historically high rates.
Then in the late 2003, the bump in long-term interest rates arises. The situation now turned upside down. It had reduced the rate of home buying. During this time, inventories continue to rise at relatively low levels. According to Chris Low, a FTN Financial chief economist, “In 2003, it was safe to say that homebuilders had entirely avoided the temptations of speculative building”. He also added that this situation is no longer true today.
Credit:ivythesis.typepad.com
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