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Are More Foreclosures And New Construction Good For Home Prices?

A new study find that new construction and foreclosure activity are running neck-and-neck, with building permits and foreclosure both up 27 in the first quarter from a year ago.

The new numbers from RealtyTrac suggest that housing markets in many are areas are returning.

“Nationwide and in most markets it appears builders are planning to ramp up activity that will help offset a drop in foreclosure starts, but there are some markets where a jump in both building permits and foreclosure starts in the first quarter indicate the scales will tip more heavily in favor of supply of homes for sale in the coming months — both new homes and foreclosures,” said Daren Blomquist, vice president at RealtyTrac. “On the other extreme there are some markets where both building permits and foreclosure starts are down dramatically, indicating that there will be no reprieve from the shortage of homes for sale in those markets in the near future.”

The comparison between new construction and foreclosure activity is interesting because it may point to more housing supply than is generally believed to be available.


On one hand, new construction can plainly be seen as an addition to the housing stock. On the other, foreclosures do not necessarily imply fewer available homes — the houses themselves could be perfectly fine but distressed only in the sense of money and mortgages. Combine foreclosures and new home construction and the result in many communities could be a large stock of available properties. If it turns out that housing supply is greater than generally believed that the rise in home prices could slow, especially in overbuilt areas.

RealtyTrac also found:

  • Nationwide single family building permits increased 27 percent from a year ago in the first quarter to the highest first-quarter total since 2008. Meanwhile U.S. foreclosure starts in the first quarter decreased 27 percent from a year ago to the lowest quarterly level since the second quarter of 2006.
  • The majority of building permits in the first quarter were for single-family homes (64 percent of total permits), followed by 5+ unit multi-family properties (33 percent). Overall multi-family building permits increased 23 percent from a year ago.
  • States with the most single family building permits in the first quarter were Texas, Florida, North Carolina, California and Georgia, all of which posted double-digit percentage increases from a year ago. All these top states also posted decreasing foreclosure starts from a year ago, although Florida foreclosure starts were down just 1 percent.
  • States where both single family building permits and foreclosure starts increased from a year ago included Nevada, Washington, New Jersey, Maryland and New York.
  • Cities with the most single family building permits in the first quarter were Houston, Oklahoma City, Austin, El Paso and Fort Worth. Of these top five, all except for Austin posted decreasing foreclosure starts during the same time period. Austin foreclosure starts increased 19 percent.
  • Cities with the most foreclosure starts in the first quarter were Miami, Las Vegas, Chicago, Fort Lauderdale and Orlando, with Las Vegas, Fort Lauderdale and Orlando posting increases in foreclosure starts from a year ago. All five cities posted increases in single family building permits from a year ago.
  • Cities where both single family building permits and foreclosure starts increased at least 10 percent from a year ago in the first quarter included Las Vegas, Seattle, Raleigh, N.C., Reno, Nevada, and Boca Raton, Fl.
  • Cities where both single family building permits and foreclosure starts decreased from a year ago in the first quarter included San Antonio, Albuquerque, Fresno, Bakersfield (both in California) and Greensboro, N.C.

“We are currently experiencing a feeding frenzy in the Reno area for inventory. While the increase of foreclosures and building permits will bring some much-needed relief in the future it will unfortunately be far from a feast,” said Craig King, COO of Chase International brokerage covering the Lake Tahoe and Reno, Nevada markets. “We are particularly feeling the heat for properties under $350,000. Those properties are receiving multiple offers within days of hitting the market so the builder and foreclosure inventory will be a blessing but far from an answer to the inventory shortage here.”

“Listings in the Oklahoma City area are down dramatically from this time last year by 18 percent and home prices are climbing. The increase of building permits in the area is a welcomed sign that some relief is on the way in terms of inventory. However, even with the increase of REO’s coming onto the market it will not be enough to solve the inventory shortage here,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty in Oklahoma City and Tulsa. “With Boeing and Northrop Grumman moving into the area there is an increasing need to get these new single family homes completed and onto the market as quickly as possible.”

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