by Calculated Risk on 7/26/2010 09:13:00 PM

The following article discusses both new and existing home supply. Here is a short excerpt on new homes ...

From Robbie Whelan at the WSJ: Supply of Homes Set to Grow

Home builders ... are stuck with thousands of acres that are prone to lose value as the market struggles. Many will build homes on the land, rather than write off its value and wait for the market to improve.

... "They're discounting the homes, they're making very small profit margins, but they're building homes." [said Brad Hunter, chief economist at Metrostudy]
...
Other indicators also point to builders preparing to increase home construction, despite lagging sales. The number of finished vacant lots, or parcels of land that have been developed and readied for building, stands at about 1.2 million nationwide, according to Metrostudy, or just 5% below the peak in late 2008.

In some communities with excess supply, home builders are competing with the distressed sales by building smaller homes. As an example, a couple months ago David Streitfeld at the NY Times wrote about a building boom in Las Vegas: In City of Homes That Sit Empty, Building Booms

Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.

Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more. ... Land and labor costs have fallen significantly, so the newest homes are competitively priced.

But just because they have the lots, I hope they don't start overbuilding again.