Existing homes are now more expensive than new ones... That’s not normal.
This housing market is frozen, weird, and a nightmare for homebuilders.
New cars cost more than old ones. And, despite ownership cycles that are decades longer, houses tend to be the same in America, with newly built homes usually 15% to 20% more expensive than existing ones.
But, in a rare reversal of history, that’s no longer true.
Marrying two datasets from the Census Bureau and the National Association of Realtors reveals that as of July, the median sales price of new homes, at $403,800, was lower than the $422,400 median price of existing homes nationally.
Harder, better, cheaper, newer?
Exactly why this is happening is complex. The short answer is that there’s simply way too many newly completed homes. As of July, the inventory of unsold new homes on the market would take more than nine months to clear, the highest in 15 years excluding the pandemic, compared to 4.6 months of supply for existing homes.
To attract buyers in such a market, homebuilders are adding discounts to new home deals, like mortgage rate “buydowns” of about 5% on average, in a bid to trim their overflowing inventory — even if it hurts their margins. In fact, a record 38% of builders said they cut home prices in July, per the National Association of Home Builders.
Existing homeowners, however, aren’t feeling as flexible on price, probably because for most of them, moving would involve reentering the mortgage market and giving up the cushy rate they might have secured during the pandemic. With no incentive to move out, America’s existing home sales hit their slowest pace in nearly three decades last year, with homeowners experiencing the strongest “mortgage lock-in effect” since the 1980s.
With slipping demand across the industry, homebuilders have also been building smaller homes to cater to cost-conscious moderate-income buyers — the typical size of a new home built nowadays is some 13% smaller than from 2015’s peak, per the Census Bureau.
