Blog Questions

“New Home Sales: 312k  Why build new houses when you can buy existing ones at below the replacement cost or cost to build a new one, even before the cost of the land.?  Of course, if you already lost money buying the land, we economists call that ‘moot’, i.e., a ‘sunk costs’ for we investors.”  That is exactly part of the crisis in confidence that is occurring in the housing market right now.  To some extent, all homes – new, existing, in foreclosure, auction sales, REOs, etc. – can basically be considered substitutable.  While no two homes are exactly alike, as real and perceived values continue to fall the tradeoff between the aesthetics of one versus another diminishes, and total costs will become more important.  Now that it has become clear that home values do not go up forever, homeowners will take this into account in addition to all other things they consider in a home purchase – job stability, location, size, credit worthiness, mortgage payments, etc.


Maureen Maitland

Vice President
S&P Indices
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