Housing economy expert John Hunt of MarketNsight and ViaSearch has identified an interesting trend in residential housing contracts across 11 Southeast markets. January home sales were hot, February through April sales cooled considerably, and early reports of May data show sales rebounding and increasing over May 2016.

Hunt explains, “There is an absolute ceiling on home prices, and the market will make corrections as needed to correct pricing. Sellers dropped prices between February and May to hit the price the market would bear. This is why we see such strong May sales data. Home prices dropped to levels buyers could afford.”

He continues, “I don’t see either an imminent collapse or explosive growth, the market is moderating and this is the new normal. Growth is going to be organic and sustainable. New home builders must follow the 80/20 rule to be successful. (New home prices, in most cases, can’t be more than a 20 percent spread above resale on a comparable product same submarket.)”

Hunt anticipates about 5 percent growth over last year. Builders may or may not be able to keep up with this growth based on lack of lots and tight construction lending, but all the signs for continued sustainable organic growth are present. Additionally, in order for new home builders to be successful, they must innovate.

As home builders scramble to meet pent up market demand, both new and resale homes are settling out at the same year-over-year growth rate for closings. Resale closings; however, still have the lion’s share of the market representing 80 to 90 percent of all transactions in Southeast markets.

Hunt comments on where the growth is coming from, “This is normal organic growth that is trending with job growth and in-migration. Of course, there is also the occasional millennial who decides it is time to join the real world and purchase a home.”

In markets where there is not a heavy constraint on the development of new lots and financing for new lots, new homes are better able to keep up with the growth rate. Columbia and Greenville are good examples of this scenario.

Savannah is struggling to keep up with demand due to lack of development, lack of developers and lack of funding for development. Hunt comments, “Savannah has been a strong new home market and there are a lot of people working to alleviate the strain by putting new lots on the ground.”

Atlanta is relatively close to keeping up because of legacy lot inventory in outlying areas; however, as development costs outpace income appreciation in the close in counties, new sales will slow as the hard price ceiling is approached.

Hunt says, “If resale is growing at 8 or 9 percent and new homes are at 2 percent, there is a pretty obvious disconnect. In the better performing new home markets, they are trending together.”

Visit www.MarketNsight.com to learn more about MarketNsight’s housing economy expertise, how MarketNsight gives builders the best information on where to build in eleven markets in the Southeast and counting, and MarketWatch Atlanta.