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How Does Interest Rates Affect New Home Sales and Wheres The Best Place To Build?


These real questions on new home starts and interest rates on real estate are answered by a US Master Builder and myself after receiving them from readers of my e-book, "Residential Development Made Easy."

Question 1.

What is the your forecast for home starts in the US for the next 12 months? 24 months?

Master Builder & Developer's Reply:

This depends upon where you are. New home starts are excellent for Florida, Texas, and Arizona.

What most people don't appreciate is that there is always growth in new homes. Cities grow in spurts, but there is also controlled growth. As one part of an area dies from old age it is revitalized and redeveloped.

So remember national growth statistics on new home starts are not much use to you unless you have a national business. The best advice we can give you is to "read" market data - census data etc.

Personally I have kept average residential dollar sales figures on homes for my City since 1974. At first it might appear to be a lot of work, but after you have your base, say 20 years worth of data, you only have to add one figure a year.

My City's growth dollar sales value shows a 150% increase every 8 years. It is valuable to know where you are in the cycle - so it is worth doing the figures.

By that I mean, if you sold a property in the seventh year of the cycle, you'd make about 90% profit on your 'buy-price' but by waiting one more year it becomes 150%.

Stats are important, so do the homework. After all, all you got to do is get some figuresfrom an office for FREE and put them on an spreadsheet.

Question 2.

How do changes in interest rates affect sales of first time new home, middle class, and estate housing? Aside from the obvious, any interesting statistics or trends?

Master Builder & Developer's Reply:

I'll tell you a secret. The answer is that it doesn't affect the new home part of the housing industry. If you watch the news when you hear about the housing industry in a slump or slowing down -- Greenspan in on the news within a few days adjusting the interest rates to ensure continued growth.

The building industry is the engine of our economy. If a country has had an economic slump and the Government wants to kick it off again, they start by 'flicking on' on the new home building industry switch.

It is the quickest to react; quickest to increase employment figures which pays for groceries, mortgages, school fees - you name it. Two economists arguing will give you three opinions, but they all agree on the 'economic multiplier effect.'

That means that a $100 million project has an economic effect in the community of about $230 million. That is the steel in the building pays the company who made it, who then pays the wages of the workers, who then pays the grocer who then pays his staff, who then pay their rent, car payments and so on - it goes round and round.

What does affect the new home industry is lower wages and our jobs going to foreign countries. If people can't afford a home, then they don't buy and that directly effects the housing industry.

Question 3.

What progressive processes are being implemented for more environmentally friendly and better insulated new homes? All concrete framing? (no wood) Other unique materials and approaches?

Master Builder & Developer's Reply:

As a Master Builder, we use the current technology in building material. Concrete is outdated and has many environment problems. Our new homes are the most environmentally friendly homes that you'll ever have built.

No wood is used except for molding and cabinets.

But the problem is convincing the buyer. We have access to material that replaces wood products, that are made up of recycled material that is vastly superior and looks more real than wood.

We have access to luxurious carpet that is made from recycled plastic soda bottles. We have access to recycled paint that has no out gassing. Recycled roofs that have a 20 year warranty. Our homes have an R-70+ rating. Meaning less energy required for heating and cooling.

There are the 'traditionalists' and there are the 'innovative clients' - all we can do is educate and then the clients will benefit and so will the environment.

Question 4.

What changes are being implemented to improve customer service to new home buyers? (My daughter is buying a Hovnanian home for a fraction of my last home purchase, yet she is getting a weekly status call from her new home sales representative!)

Master Builder & Developer's Reply:

This depends upon your builder. In our case we provide our buyers, investors and developers with daily video updates. They log into their account on our site and the site supervisor walks them through what was completed for that day and what is scheduled for the next day.

Our clients have video documentation on their property. We also provide service after the sale. If three years after the purchase, the neighbor throws a ball through the window or the cat destroys the carpet -- all the buyer has to do is log on to their account.

They tell us what needs to be replaced or repaired and in what room and we can do it almost immediately, because everything is in our database about the home.

Author & $1.2 Billion Developer, Colm Dillon, Has Written The Best Selling 'How-To' E-book, "Residential Development Made Easy," With Readers In All States Of The USA, Canada, Australia, New Zealand, UK, Ireland and 79 Other Countries Of His Independent Web Site, http://www.realestatedevelopmentcoach.com/ez


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