News & Opinions
The latest news and insights from Hanley Wood’s outspoken experts and key thought-leaders throughout the residential and commercial design and construction industry.
The Importance of Measuring Finished Vacant Home Inventory
Eric Allen / Metrostudy Report / July 18, 2014
In a volatile housing market, uncertainty tends to creep into the decisions made within the homebuilding industry. Questions such as, “Is now the right time to deliver lots into the market?” … Or, “With the current level of home inventory in our competitive trade area, how will this impact my pricing power?” Managing unknowns and uncertainty is an important aspect of most significant decisions. However, indecisiveness in the midst of dramatic market swings can have damaging consequence leading to the ignoring of apparent and broad market trends.
Understanding and monitoring equilibrium levels for the new home industry is one way to incorporate broad market trends into your daily decision-making process. Searching for equilibrium is an effort in identifying the balance point of a market, which would indicate that the home building community’s ability to close on new homes (demand forces) is being met by an appropriate level of finished vacant homes (supply forces). Conventional wisdom dictates that with an increase in the supply of finished vacant homes (unoccupied or “spec” homes) a disruption in the equilibrium will occur, leading to downward price adjustments in order to offset this imbalance of supply.