New-home sales reached a seasonally adjusted annualized rate of 298,000 in July, down from 323,000 last year, and a far cry from 2005, when 1.28 million new homes were sold, according to the Census Bureau and the Department of Housing and Urban Development.
Still, buying new does have benefits.
Despite a likely higher price tag, a home builder will say that you’re buying a better product when you buy new. For one, it’s a home designed for the way Americans live today, maximizing the usability of space and offering amenities that speak to modern needs, such as big closets. Plus, new homes are built to be more energy efficient.
“It’s appealing to people who are concerned about energy costs in the future and the longer-term efficiency of the home,” said John K. McIlwain, senior resident fellow for the Urban Land Institute, a research organization focused on land-use and real-estate issues.
“There’s also the advantage that if you buy a home today, that has energy features that will be worth more down the road, when the market recovers,” he said.
When buying new, there aren’t the questions of deferred maintenance that can come along with existing — and especially distressed — properties that have lingered on the market for a long time, said Stephen Melman, director of economic services for the National Association of Home Builders, a trade group for the home-building industry. “In general, anything that sits there has to be in worse shape,” he said.
And let’s face it: Some people covet new homes simply for their “newness.”
Buying new “has become a deep part of American culture,” McIlwain said. “We built an economy around having to replace everything every two to three years. Think of Apple: It is built on the basis that they have a new toy out for us every year or two.”
But when it comes to home buying, “new” has become a much harder sell.
New is old
The most obvious reason home buyers aren’t walking through builders’ model homes these days is the price.
The median sales price of a new home sold in July was $222,000, according to the Census Bureau and the Department of Housing and Urban Development. The median price of an existing home was $171,200 in July, according to the National Association of Realtors, an industry trade group.
On top of that, there are horror stories of new-home buyers who hit a speed bump when the appraisal is done. “Low appraisals are a disaster,” Melman said, adding that some builders are complaining of appraisals that come in lower than the cost of construction. When the appraisal comes back low, that reopens negotiations and could require a buyer to put more cash down, he said.
From an appraiser’s standpoint, valuing a new home can be a challenge, said Sara W. Stephens, president-elect of the Appraisal Institute, a professional association for real-estate appraisers. When there aren’t a lot of new homes selling in an area, appraisers are forced to look at the most similar sale they can find, she said.
Then there’s the worry about construction quality, when builders are doing whatever they can to stay afloat.