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  • Writer's pictureJesse Ledbetter

Bubble Watch

In analyzing new construction, with prices being driven up by short-term shortages in materials, its hard not to ask the question - will new construction be worth its value a year after purchase? Of course, this same question is being asked of most purchases currently.

New construction has exponentially increased in the last year with quickly rising costs. These two factors, if not "unwound" in the medium term could be the source of added downward pressure on the market in the case of a correction, as the market would attempt to bear artificially high costs and supply simultaneously. For an example of the boom of new construction, lets look to Chesterfield County.

With an increase of 50% in volume every year for the past few years, we are firmly in an exponential pattern of volume being added. This is part of the reason why parts of this market have been in oversupply (55+ communities have at points had 6 months of inventory on market). If the new construction volume were to abate OR construction prices were to lower, a future problem could be avoided. Lumber prices have seen a fall in the last few weeks that may be hopeful in this regard, but only time will tell.

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