What effect does new housing have on existing home sales and rentals?

I live in Humble, TX, just north of Houston. The sprawl has encroached bigtime, and homes are going up and being sold at record rates. My question is: what does this do to sales and rentals of existing homes? Once I get a handle on what’s a good deal and what’s not around here, I think I can either rehab or do rentals.

I want to start small, for example, there’s one neighborhood around here that has homes for $100,000 - $125,000 and not ONE home is for rent. I"m thinking if I could find one in this particular subdivision, I could rent it out easily.

I know that the low mortgage rates boost sales, which is why I’d look at rehabbing, too.

But I’m wondering, historically, what does an influx of new homes, new subdivisions, etc, do to existing home sales and rentals? I’ve even seen new homes for rent at $2700/month!! (That’s EXTREMELY high around here.) Sorry for the rambling question (now that I’m rereading it LOL). Thanks for your input.


This is what I would look at before you start

What is the annual appreciation in the area?

What is the average D.O.M (Days on market) for the homes?

At what L.T.V. (loan to value) can you purchase these homes?

Are there motivated sellers in the area?

What is the foreclosure rate in your area?

Here is a link to a Amortization Calculator that will help you figure your payment’s its kind of basic which is why I like it so much!


Other then that I would call other landlords via for rent signs in the area see what kind of luck they have been having! Also tell them that you will pay them a referral fee for potential tenants that they might have! This is a great way to meet other investors in your area!!

Hope this helps you Paula and best of luck to you!!! Robb

That is a great question. Remember that people look to new FIRST.

If you have an area that is going along and suddenly gets a burst of new homes, the resale market will sag. Of course if all those new homes are much more expensive than their resale partner, that is a different story.

The area size factors in as well. The bigger the area, the more new homes it can swallow up without becoming saturated.

I think that new homes being built in an area that are about the same price as their resale partners is disaster for the resale home–unless demand is greater than the supply.

If you are a buy and hold plan and the new homes cause resale homes to go down, that is a good time to buy a resale. Soon those new homes are not brand new and now resale homes.

Also there is a difference between a new home and a new home in a master planned community. If the community is well thought out and offers great amenities and is large, those homes will eventually stand out.

Land is another factor. How much of it is there left to be developed in the area around the city? Tons? If so, you will constantly see “new” homes as demand dictates. In that case, I myself would look to a resale home unless they are all very old (IE built in the 50’s).

Picture this. You have an area where there is a demand for roughly 1000 homes per year and typically there are 1000 homes for sale annually (70% resale, 30% new). The market is pretty even. One year 500 more new homes are going to be built. The demand is the same and there are now going to be 800 new homes on the market and 700 resale homes. After the 720 are purchased (lets assume a 90% gobble rate), there will be 700 resale homes up for grabs and 280 buyers. What do you think will happen? Prices will drop on the resale homes.

There are many other economic factors to consider but that is my simple approach to the answer.

I am no expert so wait for some experts to chime in. Just getting the ol conversational ball rolling.


Comes right back to the supply and demand thing again!!