Good credit scores + savings for a down payment + job security = consumers that can afford to build a new home. But tighter lending guidelines are impacting even that group. Government data suggests that a new home used to cost about 15% more than a resale home, but the difference now may be closer to 48%.
Blame a weak housing market, where existing homes are more affordable than they have been in a long, long time. Add in the foreclosures that lower prices even further, and the short sales that often see homes selling for as much as 10%-15% under market value.
On top of that, the prices of new homes have risen about 6% nationally, although prices vary quite a bit from one part of the country to another. Many of the smaller homebuilders are literally out of work, and some have lost their tradesmen to areas where work is more readily available. On top of that, the price of materials keeps increasing, too.
New homes represent a small portion of total home sales, even in a ‘good’ market. But they do add jobs not only for construction, but to the real estate, lending and home services and products areas. Think of all the new appliances, furniture and furnishings that often go along with a new home purchase.
The National Association of Realtors (NAR) February Report on Existing Home Sales (released March 21, 2011) indicates that cash sales reached a record of 33% of sales in February 2011, with 19% of sales attributed to investors. While this may seem ‘unfair’ to potential homebuyers, the investors actually help by purchasing properties that are often not financeable (they need too many or major repairs), and by repairing damaged homes they are helping neighborhoods to retain value. It’s amazing what a couple of run-down houses can do to a neighborhood.
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