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The real estate market: new vs. existing homes

The Housing MarketThe glut of new homes that were built during the last peak real estate cycle (2004 to 2007) created more supply of homes than there was demand. This caused our local real estate market to endure a multi-year correction in prices — of which you may be acutely aware.

Several years passed — approximately 2008 through 2016 — where there were hardly any new homes being built. You could easily find a relatively new, existing home for sale at a cheaper price than building new. This restricted new home construction for a long time.

The price of a new home today — relative to a comparable, previously owned home on the market for sale — is tipping back in favor of building new, however. Given similar size, location, etc. it’s roughly the same cost to build as it is to buy in many markets. Home builders have taken notice and are building again, rapidly. This is especially true in the area of Central Florida; we have wonderful weather, a strong economy and workforce, and low comparative tax rates to thank.

New Home ConstructionWhat does this mean for you? With a lack of new homes for sale in recent years, there’s been a strong demand for existing houses. This is driving up prices. However, as a growing number of new houses become available, I think this will change. While I would not be surprised if the prices of existing homes continue to grow, I believe it may be at a slower pace.

A recent report showed that homebuilders nationwide are picking up their pace of construction. We’ll need to keep a close eye on the quantity of new homes that come to market. This gives us clues as to how it will impact the real estate market for the foreseeable future.

 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

March 2020

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