Why Aren't New Homes Selling? Because they cost too much.


[Date:2014-7-29 14:28:08]
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Why Aren't New Homes Selling?
Because they cost too much.

 

By Frank Anton, vice chairman of Hanley Wood,publisher of Builder

I think it's really that simple to explainwhy new homes have their lowest share of the for-sale housing market in atleast the last 35 years. As you can see in the accompanying chart, new homeshave historically accounted for about 1 out of 6 homes sold, which representsabout a 15 percent share of market. Currently the share of market for new homesis less than half that.

To prove my point that housing pricedisparity between new and existing homes is behind the decline, I did someresearch. In 1983, the median price of a new home was seven percent higher thanthe median price of an existing home. In 1993, the difference was 16 percent,and in 2003 new homes were eight percent more expensive than existing homes.

So what's the difference now? It's pushing 40percent, with the median price of a new home at more than $270,000 and themedian price of an existing home around $200,000.

Of course you can argue that the most activebuyers today are second and third time move-up buyers and that new homes arebigger and better than existing homes, and, therefore, new homes have to – andshould – cost more. And you can't forget that builders make more money and at ahigher margin when they sell a bigger, more expensive home.

But, having said that, I still think it's time –past time, in fact – for the industry to step back and acknowledge that it isunder-serving not only the first-time buyer market but the lower end of themove-up market as well. And if builders want to build and sell more houses,they need to think small and think less expensive.
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