"We've seen the listings in the market drop dramatically. It's been way, way down for months and months and months. The wave of foreclosures hasn't come to us in a way that impacts the market. Investors are coming in and buying up inventory," said Paul, who sees these factors as solid arguments for spec building.
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Mid-Atlantic, a small Maryland builder with six communities, now has 10 percent of its backlog in spec homes, and they are not alone. The big public builders are heading back to spec as well.
"I think the biggest competitive advantage builders have right now is that they have product, and with existing inventory so low they need to take advantage of the fact that they actually have something to sell," explained Megan McGrath, a home building analyst at MKM Partners. "When you're starting to think about the first-time buyer coming back into the market, you may want to increase your spec inventory a little."
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Supplies of homes for sale are down across the nation. Inventory in March fell 17 percent from a year ago, according to the National Association of Realtors. Listings usually rise dramatically in the spring, but they have not kept pace with historical averages.
In its earnings release Monday Meritage Homes CEO Stephen J. Hilton noted, "Housing demand is greater than the supply of homes available for sale in many of the areas where we operate, causing home prices to increase."