Buy old or buy new?
New homes elevating in popularity but come with a price versus existing properties
All things considered, the price of a new consumer product tends to outdo the cost of a used one. A 2018 vehicle, even with rebates, likely will be more expensive than a 2017 edition, even if the model hasn’t changed significantly. Just-released video games go for twice or three times the rate of an older disc — classic or no classic.
There are exceptions. Vintage wine is said to improve with age and fetches vastly higher prices over time. Houses, too, can fall into that category.
Unlike many consumer goods, houses more regularly appreciate in value — in other words, be worth more in the future then when they’re purchased. Historic factors can play a role: a home that’s 24 years or even 24 days older than a brand-new dwelling may not be worth a premium, but a residence that’s 240 years older could be valued quite a bit higher because of its longevity and even attachments to historic events and characters.
Also homes, whether or not they’re collectors’ items, offer the added perk of a place to live. By comparison, antique cars are rarely the chief mode of transportation, or “daily driver.”
In the current housing market, however, none of these factors matter overall, based on a recent report. New homes on average almost always sell at a premium over similarly sized or styled older properties.
“If you’re looking for a newly constructed home, you may be experiencing some sticker shock. New homes are desirable for many reasons — the latest amenities, less maintenance — but it can still be difficult to tell whether it’s worth the price premium,” Trulia says.
The new-home premium phenomenon has been around for at least a few years.
In December 2014, Lawrence Yun, chief economist of the National Association of Realtors, determined that “newly constructed homes are carrying a hefty premium over existing homes. The gap, which historically had been 15 to 20 percent, has in recent years widened to 30 to 40 percent. “That suggests either existing home prices are much cheaper in relation to the newly built homes and/or that there is just not enough new homes being produced,” he said.
Today the price gap in new and old homes tends to be more locationbased or involves the size of the lot or home square footage, Trulia says.
Just-completed houses run in some cities from a few percentage points higher in price than existing properties to more than three times the pre-owned figure, the company notes in findings released at the end of October. The price premium nationwide averages 28 percent, with “roughly half tied to a home’s features,” the online residential real estate site notes.
Trulia’s calculations find that Detroit “leads the nation with the largest difference in price between newly built homes and older homes.” Buyers pay 222 percent, or 3.2 times, higher for a new home than an existing one. Bridgeport, Connecticut; Philadelphia; and San Francisco are next in order on the list.
By contrast, metro areas in the West and South post “among the lowest price bumps on new homes.” Charleston, with a 6 percent spread; Tacoma, Washington, at 10 percent; and Portland, Oregon, up 14 percent present the lowest new-home premiums compared with older housing stock, Trulia says. “The trade off ? Less land,” the company points out, noting that lot sizes are 30 percent or so smaller on average in the three cities. Trulia also cited Oakland, which has a price differential at 14 percent that’s more than double Charleston’s but also “a relatively small 3 percent decrease in lot size in new units, with a generous 51 percent increase in square footage.”
According to the online site, new construction is steadily recovering from post-recession lows in the late 2000s and early 2010s. It’s up 14.1 percent year over year. The widest gap in new homes versus older properties tends to be in the Rust Belt, with Toledo and Dayton, Ohio; Pittsburgh; and Milwaukee in the top 10.
Factoring out prices, both new construction and older homes showcase offer pros and cons, says Lindsay Listanski, senior manager of media engagement for Coldwell Banker Real Estate, on the company’s Blue Matter blog earlier this year.
New construction home advantages include:
During construction, buyers can add much desired extras. “A garden tub is an expensive modification in existing homes; not possible in some older homes,” she says.
Low-maintenance exteriors such as vinylwrapped windows. “You are free to spend your off hours golfing, traveling or enjoying your home with a backyard cookout.”
Highly efficient systems such as heating, ventilation and air conditioning; windows and appliances that lower power bills.
Drawbacks include that new homes builders typically “stay firm on price,” may wind up paying less than they originally paid for the home when they sell; may have smaller than usual sized lots and lack mature landscaping; and noisy and dusty construction can go on nearby as the developer completes the subdivision.
Older homes offer pros such as:
• Spacious yards for children and pets.
• Costs are typically 20 percent less per square foot than new construction in the same area.
• Residences tend to have more character. “Part of the joy of owning them is you can upgrade them and fix them up to your own preferences.”
Cons of buying an older home include becoming “large money pits” for buyers who aren’t particularly handy at home; less energy-efficient than new homes; smaller rooms that can’t be enlarged; and generally requiring ongoing maintenance that can become costly repairs if neglected, Listanski says.