Posted by: Peter Coy on September 27, 2007
I said this on Good Morning America a couple weekends ago and I probably looked like a shill for the homebuilding industry, but let me say it again anyway:
If you’re looking to buy a house, look first at new houses.
Why? Because builders are desperate to sell. Most of them are carrying lots of debt and will cut just about any deal to get rid of excess inventory.
In contrast, many owners of existing homes are half-hearted about selling at all. They’ll sell only if they can get the price they thing their home sweet home deserves (good luck).
New numbers this week from the National Association of Realtors (Tuesday) and the Census Bureau (today) bear out what I’m saying.
In August of 2006, the median price of a new house was $19,900 higher than the median price of an existing house ($243,900 vs. $224,000).
But in August of this year, after a bad year for builders, the median price of a new house was only $1,200 higher than the median price of an existing house ($225,700 vs. $224,500).
To put it another way, new home prices have fallen more than 7% over the past year. Existing home prices have actually risen a smidgen, if the Realtor numbers are to be believed.
Glenn Kelman of Redfin just came to visit in the middle of my writing this blog item and I asked him what he thought. Here's what he had to say:
*"Academic research suggests that you do pay a 20% premium [for a new house] but the data that came out today contradicts that, so I'm not in a position to disagree."
*"The developer has a fiscal year end, which is usually the calendar year end [Note: not always. Lennar's year ends Nov. 30], so you have a better chance of cutting a deal in December."
*"You need to ask the builder to give you money back at closing because nobody wants to set a precedent, especially if he has other units to sell."
*"You should also ask if your agent has been given additional incentives to show you the property. You may be able to cut a deal with him/her as well."
Thanks, Glenn. (He just left.)
I agree, of course, that many people will decide to go ahead and buy an existing home because it meets their criteria better than a new one. Fine.
I also agree that there are many sellers of existing homes who are motivated and are willing to offer great deals. But it's hard to know whether the seller you're dealing with is one of those or one of the half-hearted types. When you buy new, you can be pretty sure that the builder really, really wants to sell.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.