New Home Build Cost Comparison Tactic

[CJ Wilson]

Hi BP!

In markets with fairly big swings in appreciation (like California), Ive heard on a few podcasts that a good tactic to tell if the current price is a safe one is how it compares to the cost to build a new home that’s similar, and if it’s less than that it’s probably a safe bet (given of course that you’ve run all the numbers and it maths out, I know to never bank on appreciation, icing on the cake). What are your thoughts and what’s the best way to determine that new house cost? Is it just to get prices of recent home builds in the area from real estate agents?

[Nathan Gesner]

Quote from @CJ Wilson:

It's all public information. Trends to watch: 

1. Days on market: how many days are homes sitting on the market before selling? If this number is growing, the market is slowing. If it's shrinking, the market is accelerating.

2. Price: If property prices are increasing or properties are selling for above asking price, then the market is heating up. If sellers are dropping prices or properties are selling below asking price, the market is cooling.

3. Absorption rate: how much inventory do we have based on current sales trends? You'll need to get this from an agent or market expert. If we have 300 houses on the market and they are selling at a rate of 100 houses per month, then you have three months worth of inventory. By watching absorption rate, you can measure supply vs. demand.