If you're looking to buy, think about buying new

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.

Thoughts?

Reader Comments

Will

September 28, 2007 4:12 PM

I just bought a place in Woodbridge built by Lennar. The price was marked down to 265,000 from 332,000 (05-06 prices). I also got them to throw in 6% closing costs. All in all, I got about a 25% discount off of peak prices from a year or two ago, and I plan on being there for 5-10 years.

The place is about 1850 sq feet not including a one car garage. I also got a 30 year fixed mortgage at 5.5%, so my payments arent bad at all (about $2000 total payment).

I'm pretty excited about having a place of our own and not renting anymore - the past two years I've moved me and my family 3 times.

John Schneider

September 29, 2007 11:21 AM

"...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..."
It's not really that hard. You just make an offer, and depending on how they respond, you've got your answer.

Brandon

October 2, 2007 12:25 PM

"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."

This wont matter one way or the other for home values. Competent appraisers will do enough digging to determine that there were seller paid concessions and then they will adjust accordingly.

Simply making the builder give you cash back at closing does nothing to prevent "setting a precedent". The very fact that they're giving you cash back at closing has already set a precedent that home values are declining in that subdivision. That's not going to fool any competent appraisers or well informed home buyers.

lawyerliz

October 6, 2007 7:58 PM

I wouldn't buy now unless it was half off. Actually nobody is buying. Filings are down by half at the recorder's office, and a lot of stuff there has nothing to do with mtges, but are filings of probates, divorce decrees, money judgments, affidavits etc. Anybody know a site that says what the yoy decrease in sales was?

Post a comment

 

About

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.

BW Mall - Sponsored Links

Buy a link now!