Builders don’t try to compete with resales on price

11/05/2014

Builders don’t try to compete with resales on price

WASHINGTON – Nov. 3, 2014 – A trend is developing that favors resales over newly built homes.

The gap between the more-expensive median price of new residences and existing homes has surpassed $70,000 for most of the economic recovery – the widest spread since the National Association of Realtors and the Commerce Department began tracking the data in 1968.

"The reason we're not seeing more new-home sales is definitely a function of price. Builders are making a conscious decision to sell fewer homes at higher prices than to sell more homes at lower prices," says Zillow chief economist Stan Humphries.

Builders have placed considerable emphasis on erecting larger houses due to demand trends, as wealthier buyers have been the most active segment in recent years. At the same time, entry-level buyers largely have been kept out of the market due to factors such as student loan debt, tighter underwriting and sluggish wage growth.

Consequently, builders have constructed fewer homes and keeping profit margins high by making those houses big and pricey.

Largely because of this trend, the median price of new homes rose by 24 percent from 2009 to last year, outpacing the 14.7 percent gain in the median price of resale homes during that same time.

Sales of new homes climbed just 1.7 percent in the first nine months of this year from the same period a year ago. By comparison, sales soared 16.6 percent in 2013 from the year before.

Source: Wall Street Journal (10/24/14) Hudson, Kris

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Related Topics: Trends

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