If you’re planning a move and decided to buy an existing single family home instead of new construction, that decision could save you money…but maybe not as much as you think.That’s because the price gap between existing single family homes and newly constructed homes has begun to narrow. It’s the latest in a series of indicators suggesting the residential housing market has begun a slow turnaround.
The national median price for an existing home was $189,400 in June, compared to $234,500 for a newly built home in May (the most recent monthly data available), according to the National Association of Realtors (NAR). That’s a 24% difference, but a year ago last June the difference between buying old and new was 37%.
What’s going on?
- The rate of foreclosures and short sales is finally beginning to slow, from 30% of all home sales in June 2011 to 25% of sales in June 2012.
- Reduced resale inventory is boosting the prices of older homes.
- New construction is also less plentiful; according to the NAR, there was a 6.6 month-supply of existing homes last June compared to a smaller supply −just 4.7 months−of new homes.
At the same time, new home sales continue to rise, to 372,000 per year on a seasonally-adjusted annual basis in July. In fact, new home sales increased 22% since the fall of 2011 while existing home sales increased less than 5% during the same period. This may partly be because home builders, who could not compete with the depressed pricing of foreclosed properties, are resuming building at a faster pace as the supply of foreclosed properties begins to shrink.
Of course, there are other reasons why new homes tend to be more expensive than existing single family homes. New homes tend be larger and require less maintenance than older ones. And unlike older homes, new homes incorporate floor plans to fit today’s lifestyle, the latest technology, building materials and energy-saving features that increase purchase price but make the home cheaper to maintain for the long term.
So while the bargain basement prices of distressed properties may seem like a clear advantage, the benefit may be short-term only. The narrowing gap between old and new home prices and the cost to operate your home makes a compelling case for choosing new construction.