I love that automobile commercial that shows a couple standing in cyber-space and groups of cars come flashing back and forth depending on the options they choose, as they narrow their choices down to the right vehicle for their family – a perfect mix of legroom for dad and sassy attitude for mom. Fortunately, purchasing a home can be that simple – with a realtor who knows her stuff. While it would be difficult to consolidate interior features, landscaping choices, and neighborhood shopping options into one giant fly-by, the perfect home can be chosen in such a fashion. While the choice categories vary widely, there is one option that I am seeing some recent stunning shifts – The option to buy new construction or the weathered classic. I am finding that the common assumptions in this debate have been altered. There are several key assumptions that need to be expanded and distilled.
- New construction sales project to be a better value in todays market
- New construction seems less expensive because builders have dropped their base price to meet current demand
- Builders have been able to drop their base price because the houses have been stripped of the features and amenities we have grown to expect
- Home buyers must now pay upcharge fees for things that used to be standard. This fact is getting lost on many home buyers
- A resale in a newer development – especially where there is still new construction – may be a better actual value than opting to build new construction
BUYER – DO YOUR HOMEWORK!
Economic ramifications of the poor economy on the real estate industry
It is not news that we have all been affected by the stressors of the economy. As well, it is also no surprise that the real estate and construction industries have suffered tremendous blows. For example:
How do these factors affect the home buyer? I’m glad you asked.
To explore this concept fully, it is important to benchmark the expectations of the new construction home buyer. At the peak of the real estate boom – somewhere between 2005 to 2006 depending on the area – the bulk of the new inventory had shifted from the $100k to $300k range into the $300k to $600k range. There were obviously a lot of reasons this shift occurred, which I will not explore. What is important to note here is that the expectations of the buyer in terms of home features and size grew rapidly in this period. People grew accustomed to more expansive and elaborate floor plans and features. Builders were happy to oblige and the industry boomed.
Fast forward to today, new home prices have dropped significantly compared to just a few years ago – more in some places than others. Because of this, today’s new construction home buyer is treated to a smorgasboard of tremendous deals in great new neighborhoods.
But are buyers really getting a deal? While it appears that you are getting the same great house at a lower price, what has actually happened is some builders have removed the options they once offered in order to lower their advertised entry price. Builders were forced to do this to meet market demand. So buyers be aware that although the price appears lower, if you haven’t lowered your expectations you might be disappointed with some of today’s new construction.
Interesting side note – Many newer developments are facing an uncomfortable adjustment of home values because of the higher prices some paid to be the first in, versus the lower priced and more cheaply built homes builders are forced to construct now.
This may not come as a surprise to you or your agent. Hopefully, you are able to evaluate your prospective home objectively and are able to wade through the flashy “dream weavers” that guarrantee a fantastic value at such a bargain price. If not, contact a professional. Your Realtor can help you explore all your options and point out any pitfalls.
In my next blog post I will present a case study of a weathered classic going up against new construction in its own neighborhood.
