What Housing Overhang

Housing starts fell to lowest level since World War II, but you wouldn't know it driving around Silicon Valley.

Home values here are 50% off their peaks 2-3 years ago. My next-door neighbor has had his house on the market since June and has reduced his asking price twice. He has no takers. His isn't the only house for sale in the area. Meanwhile, I pass three separate construction sites on my 5-mile commute every day. Between them, these three sites have 200 housing units. What we have is not simply weak demand coupled with abundant supply. What we have is a guaranteed pipeline of oversupply. My prediction is that home prices won't start rising until this pipelined capacity is absorbed.

The good news is that new construction, and its progress, are easy to observe. A foreman at the Nexgen site, the farthest along among the three, said he expected to finish in 6 months. I expect work to continue for a year or more at the John Laing site. It may take longer to sell the properties, but again the process is easy to gauge. If no new construction spurts by then, it will be a reliable indicator of a housing bottom. I expect to see rising prices when I stop seeing construction sites.

Here are the addresses of comanies mentioned in this article:
John Laing Homes
Shea Homes
Nexgen Builders