New Construction and Its Affect on Real Estate Values

Almost every community across the country has new construction projects currently being built and on the horizon to be built. Knowing their effect on the value of your property or future property can be extremely beneficial. New construction projects can have a small or in some cases a tremendous impact on what direction real estate values will head. The real question is why and how to do we found out accurate information to judge its true effect. If you knew that in the next couple years that homes in your area are going to decline a large amount, would this information before hand help you? What if you where thinking about selling your home? You might act as soon as possible instead of waiting, wouldn’t you? What if you really want to buy a condo in a town that you had evidence would decline rapidly the next couple years? Would that have any influence on your decision on whether to buy now or wait?

The reason new construction has an effect on values is simple. New construction adds additional inventory to the market place. Anytime more homes are added to a market place then values will be affected because buyers now have a larger pool of homes to choice from. For example if there are 100 single family homes on the market and a new development breaks ground and adds a 25 lot subdivision the inventory levels have increased by 25% to 125 properties.

Real estate is affected by the economic principle of supply=demand. When supply increases and demands remain the same values have to decline. While if supply decreases and demand is stable or increases then values have no choice but to depreciate. Therefore any new construction projects have to have at least a small impact on value. Imagine if there are 50 condos on the market in an area and a new condo complex is about to be built that consists of 50 new units. The number of condos in that market would double to 100 units. Unless demand also doubled which isn’t likely, values of current condos will decline in the near future. Therefore if you are thinking about selling, make sure you sell before the complex hits the market.

Finding out what new construction projects are in the works is easy, go to your local planning board and ask them what projects are about to be started. You can also find out what other projects have been submitted for approval and will be coming down the line in the next 6 months or upcoming years. This knowledge is priceless.