A home under construction next to an older home.
Illustration by Lanette Behiry/Real Estate News; Shutterstock

Do new and older homes cost the same now? It’s complicated 

Limited inventory is changing the behavior of buyers and the price of new construction relative to existing homes, several experts told Real Estate News.

August 26, 2023
4 minutes

Key points:

  • Statistically speaking, there is only a $30,000 gap between the typical new home and existing home.
  • People who might normally choose an existing home are turning to new construction, which has more available inventory.
  • From location to amenities, comparing new and existing homes is “apples and oranges,” one expert said.

The latest numbers on new home sales and existing home sales seem to tell a surprising story about the cost of new construction, reshaping buyer behavior in a uniquely challenging year.

Specifically, the median sale price for existing homes in July was $406,700 versus $436,700 for new homes. That's only a $30,000 difference — a relatively small amount, especially when looking at a 30-year mortgage horizon. The gap was even narrower the previous month when the median existing home was $410,200 while the median new home price was $415,400. 

But is it really fair to say that older homes and new homes cost the same? It's a little more complicated than that, experts told Real Estate News. 

Limited inventory creates a skewed picture 

New home prices usually go up "a bit faster" than existing home prices, said housing expert Rick Sharga, CEO of CJ Patrick Company. But limited inventory of existing homes is creating the "housing market's version of an inverted yield curve," turning expectations upside down.

"People who would normally buy an existing home can't find one, so they're targeting the builders," Sharga explained. 

At the end of July, there was only about 3.3 months worth of supply of existing homes while new-home inventory was more than double at 7.3 months.

The continued drop in existing home sales presents a skewed picture of the market, said Jody Kahn from John Burns Real Estate Consulting. "Anytime your pool of transactions you're relying on for information is getting smaller, that's not good, right? We want a big pool," Kahn added.

Looking beyond the price tag at location and amenities  

While new and existing homes may seem close in price, it's an "apples and oranges" comparison, according to National Association of Home Builders Chief Economist Robert Dietz. In practice, he suggested, buyers and their agents will find that there is a gulf between new and existing home prices.

A similar price convergence happened before, Dietz said, which led to "headlines of 'Prospective homebuyers value an older home more than a new home.' Well, on a per square-foot basis where the location is equivalent, that's not true."

Newer homes are likely to offer more amenities, be more energy efficient, and require less immediate maintenance and repair, he added. And homebuilders can lure buyers, he noted, with incentives like mortgage rate buydowns and price cuts. They can also lower costs by shrinking new-home footprints

Generally, a lower-cost new home will be built in outer-ring suburbs away from a metro area's main core.

When stress and resale value enter the equation

"The bottom line is if there's nothing for sale and somebody has a family event happening — they're getting married, they're having a second child, they're taking care of a senior parent — these drivers are still creating demand and people are buying homes," Kahn said, adding that opting for a new home reduces the chance of a buyer having to "struggle" in their search.  

In the rare case that a buyer can choose between a new home and existing home that are close in price, the decision should be simple, Sharga said.

"If you're in a market where the delta between existing home price and new home price is nominal, I think the inclination is to go with the new one," he said, adding that the newer home will also likely have a greater resale value than an older home. 

But regardless of new or existing, buyers should focus on what fits their needs and what they can afford, he said.

"There's an old line about how the best time to plant a tree was 20 years ago and the second best time is today — I think that probably applies to housing too. If you can find a house that you like, and you can afford it at today's rates, you shouldn't hesitate to buy it."

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