Understanding the Current Housing Cycle

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Understanding the Housing Cycle Print E-mail

NH Housing CycleIt should come as no surprise to the reader that over the last ten to fifteen years housing costs have risen dramatically and recently they have fallen significantly.

This paper will attempt to explain the following conclusions:

The housing market is normally in a “growth mode” (where new homes are required to accommodate an increasing population) or a “retraction mode” where the supply of existing homes is more than sufficient to accommodate demand.  When in the growth mode, home values are closely related to the cost of new homes (replacement value); when in the retraction mode, all bets are off.

  The cost of building a house (the bricks & mortar) has, over the past several decades, increased, by almost exactly the same percentage as the cost of living (CPI);

The total cost of a new house, including land, has increased by a much greater amount;

The runaway cost of housing is due to rapidly increasing lot costs, resulting from:

  1. A decreasing supply of land, and;
  2. Zoning and growth limitation changes which have greatly reduced “yield” from a parcel of land and created restrictions on market forces, a major factor in causing a rapid increase in lot costs.

An increase in lot cost results in a “multiplier effect” which causes housing costs to increase by more than the increase in the lot cost, as well as the structure.

Artificial constraints like building permit limitations, impact fees, etc. result in higher lot costs which, owing to the multiplier effect, push housing costs even higher.

To see the rest of this article please click here to goto www.NHHomemarket.com and the National Housing Cycle


Comments (1)

Edward D. Nikles
Ed Nikles Custom Builder , Inc. / Nikles Realty , Inc. - Milford, PA

Dave , I agree with your concise analysis ! Appraisals have become the most critical part of the new equation , as existing home price drops have made it near impossible to comp out new construction ! Even with existing lot prices down , new construction is a more costly option , as we have to build to current codes with current material prices ! Material prices have not dropped , like most people seem to think , as manufacturers have lowered supply along with the lowered demand . In fact , I was notified Thursday that my asphalt roofing prices are going up yet again due to refiners getting more efficient in refining a barrel of oil , hence less asphalt byproduct ! We will also be competing for asphalt with the " shovel ready " road  construction projects ! Keepin' it Green !

Mar 01, 2009 03:56 AM