"Right now the divide between new and existing home prices is wider than ever. The average price of an existing home in December was $231,400, according to the National Association of Realtors, while the U.S. Commerce Department reported the average price of a newly built home stood at 304,000. " http://www.cnbc.com/id/100439451 ------------------------- My question: Who sets the price of the house? (I understand the land, construction costs and location are the main factors, but this is not real life at the moment) Imo, the appraisal. I get the impression it's easier to mortgage a new house than an existing one, for the simple reason, if the owner defaults the bank takes possesion of a readily saleable property. New fixtures, less maintenance, etc. Too many unknowns in an existing piece of real estate. The great divide comes for the appraisal end. Banks are redlining product as opposed to years ago, redlining zip codes.
In new construction it is the builder or developer that set the price. Most builders can not walk away with a loss because they are highly leverages and need to cover all costs. Resale homes require comparable sales as evidence of the appraisers opinion to establish the value.
We've watched this closely in our area as well. We were trying to buy new from a builder late last year. We picked the lot, designed the home and got a price...all set. Except the builder said that the lot wasn't "released" yet. So we had to deposit 5K to hold it and they would let us know when it was released. Every several weeks, they raised the price 10K without releasing the lot. Finally after 40K, we took back the deposit and walked away. They have raised prices much more and now have 4-5 deep depositors in line for the houses. We found larger and nicer existing homes less than a mile away for 100K less. Why do builders do this? Because they can. It's as simple as that. There is very low inventory right now so the builders have little competition. If you were a builder and you could continue to raise prices and have people still standing in line, you would continue to raise prices until you found the right value. Apparently, there is still room for them to go higher. The article is correct in that rates are super low, but standards are very high even relative to pre-boom levels. FICO's below 720 aren't even able to sit down and talk about a loan today. That's a lot of people. Programs above the 625K upper conforming are extremely limited. We have only one bank in the DC area doing them for a competitive rate. You can go FHA, but the mandatory insurance for an FHA loan adds about $850 per month to the payment for a $700K loan.
That is straight up illegal! That is a sales technique that real estate wholesalers (foreclosure flippers) and auction houses use. You lure in people with extremely low prices and create a bidding war. It works but is illegal if you have a deposit and a contract! I would contact the state Real Estate Commission and make a complaint. Chances are they will do nothing but it may make them stop this practice.
Before we bought our house, we looked at several in the area. Some new and some around 10 years old. The new ones had poor layouts and were priced high. The old ones were nice, but were pricey too. The city I live in is not an expensive area by any means, but the house prices haven't dropped hardly at all since the housing crisis. People all still want top dollar for their homes and they just weren't worth it. Some of the foreclosures were still priced at almost appraised value and they needed a lot of work in all the ones we looked at. The owners had trashed them before leaving (left windows and doors open so carpet and wood flooring was ruined). Needless to say I wasn't too thrilled with the selection and I refused to buy a house unless I was getting a really good deal. I found one amazing deal on a foreclosure a 3000 sq ft house for roughly $100-130k it had a really big yard and big two floor porch on the back. We had a big storm though, and it had blown the gutters off part of the roof and ripped off some shingles, also the prior owners had taken all the fictures and everything. But you still could have replaced it all and come out ahead. The problem was, no bank would make a loan on it because of the damage. They foreclosure bank wanted cash deals only.
Technically, we had no signed contract. Everything was prepared in "draft form" and was ready to sign pending the lot release...which of course still hasn't happened to this day for the poor bastards still waiting in line. I see prices heading up in a mini-bubble right now given the super low inventories and tight mortgage market. Once mortgages open up a bit and inventory returns to normal, prices should tick down before resuming a normal growth pattern. A lot of the flippers in our area that picked up foreclosures in 2009-2010 are turning them now and making at least 150K on each.
1) In a way, isn't that comparing "apples to oranges" because.....(confirmation of the obvious).....newer homes, on average, are simply larger than older existing homes? 2) Can a builder assign a "high value" to a home that will sell at at 25% discount in order to inflate his inventory value? :eek: