Saturday, April 16, 2011

NEW HOMES VS RESALE HOMES - the real story

I've been watching the TV, reading the newspapers and looking on the Internet for pricing of new homes vs resale homes and have been faced with a stark reality.  New homes cost more than used homes.  But is it that simple?

I started making a list of properties that were for sale in my marketing area and talked with some real estate brokers and builders and differences between the types of housing began to emerge.  The real estate brokers pointed out that there are really only two kinds of used homes for sale today.

The first are homes that would be for sale in a normal year anyway.  People being transferred, downsizing and up-sizing along with the deaths of the homeowner.  These homes are usually well maintained and bring a good price even in this market.  Some of these homes may be upside down on what they were purchased for years ago compared to what they can get today but they are still bringing the highest dollars.

Then there is the second group, the foreclosure and short sale homes.  They usually need work to bring them back to their glory days.  Landscaping has been neglected, rooms need painted, flooring needs replaced as well as HVAC systems, etc.   

Prices for these homes are half or less what they were worth before the housing crisis.  Banks are starting to sell these homes to investors that want to flip them after putting the minimum amount into getting them presentable to home buyers.  Flipping is back!

Enter the new home builder with all new materials, current wages, higher fuel costs, stricter lending practices for both the builder and the buyer and you would think that there would be no new homes built.  But that isn't the case.  Things are looking up a little for the new home builder.  Their pricing hasn't substantially increased...yet.  Their subcontractors are still desperate for work and have been holding their costs to the builder in check. 

The new home builder will have the foreclosed houses in their faces for quite some time but they are competing well with the normal resale home, the ones that bring the highest prices. 

It then boils down to choice for the home buyer.  Buy a nice used home with 90% of it the way they want it and have to spend money to bring it up to their needs and desires or buy a new home with everything they want already in place.  It turns out that it is about an even swap.  Good news for home builders.

And even better news for new home builders that use modular construction.  Most factories set their pricing for a year at a time and adjust rising and sometimes dropping costs by using a surcharge system.  But even with that, modular home builders are at a real advantage over site builders who have to wake up every day wondering if drywall, lumber and other materials have gone up before they had a chance to order them.

If you are a new home builder that has turned a deaf ear to modular home sales, maybe this is the year to add them to your current lineup of site built homes. 

Like my Mom used to tell me at the dinner table... 
"Try it, you might like it!"

1 comment:

San Diego New Homes said...

The new mortgage reforms will have a great impact on the housing market; both new homes and resale homes.Many prospective homeowners will not be able to meet the stringent income to mortgage payment ratio of 28% and heftier payments. As a result we will see more renters.