How do builders know when it’s time to start a new project? Other than perhaps a builder who regularly builds and sells spec homes, how do developers know when it’s time to commit to a much larger project such as an apartment building or a new subdivision. That would be nice to know, wouldn’t it?when to build Don’t developers spend large sums of money on demographic studies to help determine whether or not to start a new construction project?

You may have noticed this but sometimes in specific parts of a city not just one apartment building but two or three have broken ground. Someone knows something and they’re seeing a demand for rental property either right now or coming around the corner. You’ll also notice that new construction comes and goes in waves with lots of new projects hitting the ground then somehow slamming on the brakes.

When existing home sales begin to pick up builders look at two numbers. Is the median home value higher compared to the same period last year and if so how long does it take for an existing home to sell? If prices are consistently on the rise and it’s taking less and less time for an existing property to sell, that weighs heavily on a decision to build new inventory. New construction is a lagging indicator but an indicator nonetheless. There are only so many existing homes in any area and when they’re snapped up as soon as they’re listed, a developer will build as quickly as feasibly possible to meet the sudden surge in demand.

Developers will build in phases and as each phase is completed a decision on whether or not to start the next phase will be made. Take hints from builders.  When there is considerable activity in the new home market, there’s a reason. Don’t ignore the trend.