This morning, the U.S. Commerce Department reported that construction spending fell 0.4% in June - about 1/3 more than the expected fall of 0.3%.
This is another of those statistics that seems like it ought to have some meaning to normal investors, but is generally misunderstood.
I’ll not delve into the deeper details of construction spending statistics, but I will give you a simple way to read this news for being the positive indicator that it is:
The basic laws of supply and demand determine the value of a limited commodity, including real estate. Real estate supplies generally originate from one of two sources: (1) the construction of new homes and (2) resale of existing homes.
Right now, that balance is severely out of line since there’s a third major contributor to the supply of homes: foreclosures.
Nevertheless, the laws of supply and demand reign supreme, and the drastically increased supply of houses on the real estate market has pushed prices lower than they were four years ago.
But the market is beginning to snap back into shape as evidenced by today’s construction spending report. As construction spending decreases, the supply of newly constructed homes will decline, decreasing the overall available inventory of homes for sale, and potentially driving up the value (and therefore price) of real estate.
Nothing complicated about this analysis - just simple logic. And it’s one more reason to have a positive view of the real estate market.
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6 Comments So Far»
Yep There is always good information in economic reports. You just have to know how to analyze them.
I like it when they start crying “the sky is falling!”. It lets me know that I need to go outside with my basket and catch me some pieces of sky.
Yes Brian , but something still bother me a little , what happens if the Real Estates prices still going down and an investor buy a property today and hold a little to resale later for a profit and the prices keep going down ? it turn to loss? I read some investors are waiting until this behavior slow down , other said is the best time to buy… two different opinions that can confuse some investors .
thanks for your reports it keep me inform and up date!! good work!!
Jose
Jose - there’s no straight answer to that. It’s my opinion that for most of the markets in the United States, real estate is at a bottom or already rising. Real estate is a risk-oriented venture, and the risk is where the potential lies. But I think that if you plan to hold any real estate you acquire right now for atleast a few years, you’re likely to do ok. But trust your own experience and advice from a qualified advisor. I’m just some guy sitting in a suburb of Atlanta telling the world what I think about the real estate market. — Bryan Ellis
For an investor dealing in fix & flips that is good news. Pick a hot market that the growth potential is great. It will take the builders time to gear back up giving resales a boost. I am betting on Vegas. Once the supply balances out it should experience growth in prices.
Jeff, please describe some sky you’ve caught lately. Thanks.
Teardowns in California. There is so much inventory that no one wants to deal with them. I line them up for a builder that I know and he’s knocking them down.
Estimate Brian , tonight I was reading about Cal-Equity PacTrust and in this publication talk about the benefits to use this System instead short sale ,Deed in Lieu ,lease option , or other creative sales techs. Also with this you can avoid others problems that they also said is not legal because the lender can proceed a due-on-sale writes, according the Garn-St Germain Law .I read about this a little , and also in your blog I found more info about the use of this “non-traditional” financing programs ,it is big possibility the lender to do not claim their writes because the implications involve in the process .
Now I would like to have a other point of view and other opinion about it . It looks is a good system because protect the buyer and the seller a couple of problems.
I know this is nothing to to do with this article and if you prefer not publicate this and answer in privet its OK. I just need if it a good system to use.
Thank you again for all the help you give in this blog
Good work!
Jose Vazquez
Jose- thanks for your comments! I checked out that program a few years ago, so my knowledge may well be dated. It appeared to be “technically” viable, but I question the practical viability of it. It was extremely complicated compared to normal transactions, making me think that it may be difficult to pass it by sellers and/or their attorneys. This is just conjecture and the practical experience of others may be different. Right now I think it’s really unnecessary as I’ve heard a large number of recent accounts of lenders being willing to simply waive the due on sale clause. — Bryan Ellis
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