New homes are becoming a bad deal in weak markets

Bellow find an excellent article, from the AZ Daily Star, about how new homes are often not as good of a deal as exisiting homes in a declining market.

“A new home, the dream of many would-be buyers, makes less and less financial sense in many places.

A wave of foreclosures has driven down the cost of previously occupied homes and made them even more of a comparative bargain. By contrast, new homes have become more expensive.

The median price of a new home in the United States is now 48 percent higher than that of a home being resold, more than three times the gap in a healthy housing market.

Such a disparity can be a drag on the economy. New homes represent a small fraction of sales, but they cause economic ripples, bringing business to construction and other industries. Sluggish new-home sales deprive the economy of strength.

“There’s a relatively small group of people who have the credit, have the down payment and are secure in their jobs that can go out and buy new,” says Mark Vitner, a senior economist with Wells Fargo.

The gap is widening because prices of previously occupied homes are falling fast, pulled down by waves of foreclosures and short sales. A short sale occurs when a lender lets a homeowner sell for less than they owe on their mortgage. New homes aren’t directly affected by such sales.

The median U.S. price of a new home – the price at which half the homes sell for more and half sell for less – has risen almost 6 percent in the past year to $230,600, even though last year was the worst for sales in nearly a half-century.

Slowed by those higher prices, new-home sales have plummeted over the past year to the lowest level since records began being kept in 1963.

By contrast, sales of previously occupied homes have fallen almost 3 percent in the past year. Prices have dropped more than 5 percent. In February, the median U.S. price for a resale was $156,100, says the National Association of Realtors.

That adds up to a price difference of $74,500, or 48 percent, the highest markup in at least a decade. In healthier markets, a new home typically runs about 15 percent more, according to government data.

Home prices and sales still vary sharply among metro areas. Cities with more foreclosures – and Arizona has been hit hard by those – tend to have more resale homes that have languished on the market and are priced at a bargain. That makes new homes in those areas comparatively expensive.

In some areas, older homes were more expensive before the housing market bust.

That was especially true in urban neighborhoods with little or no room left to build on. But now, buyers get their pick even in some of the trendiest places.

Homebuilders have taken notice. Residential construction has all but come to a halt. Builders broke ground last month on the fewest homes in nearly two years. And building permits, a gauge of future construction, sank to their lowest in more than 50 years.

Many builders are waiting for new-home sales to pick up and for the glut of foreclosures and other distressed properties to be reduced.

But with 3 million foreclosures forecast this year nationwide, a turnaround isn’t expected for at least three years.”