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Construction activity not yet rising alongside home prices

Posted on Friday, September 6, 2013 at 12:27:58 PM

Over the past few months, potential buyers interested in residential financing have watched mortgage rates closely, paying careful attention to increasing home prices and other factors that affect the housing market.

At the moment, housing prices are on the rise, according to real estate website Trulia. Growing 11 percent year-over-year, asking prices also ticked up more than 1 percent month-over-month. On the surface, it appears that the gains are related to a strengthening real estate segment, but underneath more might be going on.

Looking at prices quarter by quarter, a negative trend becomes apparent, Trulia noted. The overall rate of price increases has been dropping, from 4.0 percent in April down to only 3.1 percent in August. Construction might be a possible cause, and new permits are only near 60 to 70 percent of normal averages. Typically, rising prices couple with more activity, but not currently. The greater the increase in price the less construction activity the industry now sees, on average. 

Moreover, the National Association of Home Builders reported that the amount of ideal buildable lots is lacking, possibly limiting the housing recovery. When focusing on the most desirable locations, 34 percent of builders stated that supply was very low. Less new construction may reduce options for those using residential financing.