New vs. Resale

Ara K. Hovnanian, president and CEO for homebuilder Hovnanian Enterprises, said this week that new homes have traditionally been priced higher than equivalent resale homes, though builders in slow-moving markets have ramped up incentives and dropped home prices to jump-start sales during this downturn.

"Now, things are backwards," he said, "with new homes selling at a discount to existing-home levels. Homebuilders have lowered prices on their new homes much more dramatically than existing-home owners have been willing to lower prices on their homes." He cited examples in which the company lowered the net average selling price in a couple of California communities by 28 percent to 35 percent from December 2006 to October 2007 through a combination of incentives and price drops.

In some markets that may be the case, though national median price data doesn't reflect the flip that Hovnanian describes.

The National Association of Realtors forecasts that the divide between the median resale-home price and the median new-home prices will grow next year, and the median price of resale homes is expected to be $218,200 this year compared to the median new-home price of $242,500 this year.

The U.S. median price of new homes actually increased at a slower rate (up 9 percent) than the median price of resale homes (up 12.4 percent) in the boom year of 2005 compared to 2004, according to NAR stats, while the median resale price rose at a slower rate in 2006 (up 1 percent compared to 2005) than the median new-home price (up 2.3 percent compared to 2005).

What are you seeing in your market areas? Are new homes a better bargain than resale homes? Are new-home incentives and price reductions driving down the price of resale homes or is there a disconnect?

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