As a new home-owner, it's nice to read from Bill Hobbs that the recent surge of house construction hasn't created a "real estate bubble". In the early 1990s, Southern California property value was depressed pretty severely due to an over-supply of new houses being built by developers on speculation. Buyers didn't materialize, and new houses sat vacant for months, pushing down the prices of real estate all across the state. So are all the new homes being built now creating a similar effect? Apparently not.
The most recent Census Bureau numbers show one key measure of new homes available for sale as low as it's been at any time in the last 40 years — a 3½-month supply at the current sales rate.Before I bought my house in the South Bay (south of LAX airport, in Los Angeles) I considered buying in the Westside, but decided against it partly because of this fear. Real estate values in the Westside had risen about 70% in the 18 months before I was looking to buy, and I thought it would be ridiculous to jump into a market like that. Plus, thousands of new apartments and condos were being built in nearby Playa Del Rey at an old industrial site. I don't expect the Westside to start appreciating significantly soon, especially considering that interest rates are going to rise for a while.
Homeowners can take some comfort from that. The biggest regional housing busts of the last 25 years — Texas in the 1980s and Southern California and the Northeast in the early 1990s — shared a common characteristic: a huge number of unsold new homes that depressed home values for everyone. As the Texas real estate market was about to tank, for example, the supply of unsold new homes nationally stood at a record high — nearly 12 months' worth.
There is also new residential construction planned on the current site of the Los Angeles Air Force Base (near where I live), and I am concerned about the effect those additional units may have on local property value. Hopefully the generalities in this article will apply to this specific circumstance.