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Many Homes Now Worth Less Than What They Cost To Build: Report

The Huffington Post  |  By Posted: 04/17/2012 4:21 pm Updated: 04/18/2012 10:01 am

New Homes

It’s a tough time to be a home builder -- especially now that so many houses aren’t worth what it costs to build them.

That’s the surprising finding of a recent report from the National Association of Home Builders. About one out of every three builders is now grappling with a dismaying problem: once the homes are finished, an appraiser comes around and declares that they’re worth less than they cost to construct, according to the report cited by SmartMoney.

That’s bad news in a market where housing sales are already far from robust. Persistently low prices and an overall climate of economic uncertainty are keeping many would-be homebuyers from taking the plunge.

The lack of momentum in the housing market, in turn, is thought to be a major factor keeping the economy in low gear -- not to mention crowding out low-income renters as more and more people are skittish about buying.

Selling a newly built house presents a special set of challenges -- not all of which have to do with home appraisers, a group the NAHB has been quick to criticize in the past. As SmartMoney notes, the market is already flooded with cheap foreclosed properties, which homebuyers are more likely to turn to. New-home sales fell in February to a number about 10,000 less than what analysts expected, according to CNN.

There are already more than 10 million vacant homes in the country, according to some estimates, but the supply of new houses seems on track to keep going up. Builders requested the most permits in March for new construction projects in three and a half years, according to the Associated Press.

That’s good news as far as unemployment is concerned -- an NAHB economist told CNN last month that three jobs are created for every new house that gets built -- but it remains to be seen what kind of effect it will have on a market where housing supply already far exceeds demand.

Correction: A previous version of this article ran with the headline, "A Third Of Homes Now Worth Less Than What They Cost To Build." That was incorrect. A third of home builders belonging to the National Association of Home Builders have reported instances in which new homes received appraisals of less than building costs.

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