New Construction is Selling for Less Than Existing Homes, But That’s Misleading

The exploding residential market continues to skyrocket, rising as quickly as manpower and material supplies can accommodate. And yet, new national data from the first quarter of 2021 shows that existing homes sell for higher prices than new construction.

Homebuyers paid a median price of $380,800 for new construction in March; for existing homes, the median sat at $334,500. This price differentiation seems odd when the escalating cost of materials has driven new home prices up anywhere from $35,000 to $50,000 more than last year.

The Motley Fool blames the price difference on a lack of competing inexpensive existing homes (between $100,000 and $280,000). Owners of these homes lack the capital to upgrade to new homes; hence, they stay put. Meanwhile, expensive home sales boom. Homes priced at between $750,000 and $1 million sold at rates up 82% over a year ago. Homes over $1 million increased by 108%.

The result: existing homes sell for higher price tags than new construction due to a lack of inexpensive homes on the market.

Mortgage lending practices also skew the numbers. For example, purchase of a new home typically requires a 20% down payment. In contrast, existing homes require only 10% or less; this leads some buyers with less cash to choose existing homes over new construction.

While new construction might seem a bargain, wise home buyers should understand the story behind the numbers.

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