Recently Larry Murphy, who runs SalesTraq and thnks about the Real Estate business in Las Vegas had a thought about new versus resale purchase.
He started with a chart similar to this one.
And points out that the gap between the average resale and the average new is about $88,000. If you retreat into history you find a gap of $35,000 when the new build price was last at its present level and of under $10,000 when resales were last at their present level.
But think about it for a moment. When you walk into the office to sign your offer the home is new. When you walk out with your keys you own a resale. So on a home purchase of $200,000 or so are you down $88,000?
But you are probably down a good part of that. The resale numbers quoted reflect a slightly different population than the new sales. The new sales are perhaps 200SF bigger reflecting perhaps $20,000 of the gap and there is likely a quality factor...the resales are rich in low end REOs which will be of a lower quality than a new build. So perhaps another $10,000 to $20,000 in quality difference. Note though that resales are much more likely to come with pools and completed landscaping pushing the gap the other way.
You are down about $45,000 to perhaps $55,000 the moment you walk out the door. About 20 to 25% of the cost of a $200,000 home. Likely other size homes will suffer in about the same proportion. You can strive to minimize the hit...but it will be there. And you will probably not know what it is exactly until you need to sell.
Well two obvious theories. The new build homes are over-priced or the resales are under-priced. Or perhaps some combination of the two.
It appears obvious that the developers have been moving heaven and earth to move their product so they are likely priced closed to the bare bone. Some have stated that they are virtually giving the land away to achieve the lowest price.
There have been, for a long time, indications that the resale prices have been artificially lowered by the impact of the lender pricing of REOs. REOs for instance are priced something like $20. or $25. per square foot less that classics. So again we see a differential of about $50,000 on a 2,000 SF home. This is clearly not the same differential as the new versus resale but is likely a major contributor both directly and in its impact on classic pricing.
Well eventually this will go away one would think. When there are no longer any continuing stream of foreclosures one might well expect that resales will return to a price much closer to that of new. The resale owner gets a value increase. The buyer who bought new is only receiving some portion of the gap which he spent.
The end of the foreclosures may be a while though. There are still thousands of homes in Las Vegas trapped underwater that must be resolved. Barring some successful intervention that could be five or ten years before it has run its course.
It is also possible that eventual population growth in Las Vegas could begin to eat the available inventory and create pressure on price. Again thugh it is difficult to foresee such an outcome for some years yet.
It is also a local problem. Perhaps present in Phoenix or south Florida but not in the rest of the country.
First off the buyer needs to recognize the problem. There really is a hit if you buy new. You will not recover your investment for a long time.
If normal 20 or 25% equity is brought to the transaction it is effectively gone as soon as you close.
If leveraged by an FHA or VA a buyer of a new home should expect to be in the house more than five years. And it could be a lot more.
So proceed with great care.