NAR_grey_logo-01

New Home Price Premium

Untitled

Newly constructed homes command higher prices than existing homes. Newer appliances, newer building materials and such, plus the new homes being generally larger-sized, account for most of the difference. Historically the premium of new home price above existing home price has been about 15 percent. However, recent price data say that the premium has risen to 45 percent. That is, the median price of new homes in January was $230,600 versus the median price of existing homes of $157,900. The much lower existing home price is partly due to distressed home properties on the market that are selling for much less than the replacement cost. Still, the exceptionally large price differential between new and existing homes may imply that either new home prices have to fall or that there is good growth potential for existing home prices.

The ratio of the new home price over the existing home price is shown in the graph above.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

More Posts

Comments
  1. Very interesting stuff. I believe the “distressed” effect is likely a big part of the explanation and is a major reason why Median Sales Price is a troubling metric to use in evaluating home prices in recent years.

    Excellent data, as always.

  2. The new home builders are also having a very difficult time with appraisals as they are using the distressed properties as comps, but they also show the build cost on the new home which is always much higher than the value they have given so the customer walks away from the purchase as they cannot get a loan and the builder cannot reduce his property and sell at a great loss

  3. Marilyn Larez

    Appraisals for new home sales should use ‘like comparables’ with model matches in the new home subdivision or other similar NEW homes as this is the best match rather than older, pre-existing short and REO distressed homes in non new condition and without warranty. Appraisers who use old homes to compare to new must cost addjust for all new roof, flooring, window coverings, appliances, cabinets, and fixtures at the real world price to replace. Then there would be a like for like, new to new, and with the warranty of new. In this way a real comparable value could be established for the lender. Distressed sales while a bargain on the front end for the buyer end up costing the buyer tens of thousands to remodel and bring up to ‘new’. Just had one that cost the buyers $134,000 to remodel. A new home would have been a better value.

  4. Hmm. Interesting stats. I find that new builder inventory homes are often the best deal for my buyers. They are in direct competition with distressed homes, but the buyer still gets the “new’ effect and can often get finishing upgrades at a greatly reduced price compared the custom builds that rack up extra fees quickly.