The Real Story …
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth
The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.
New or used (uuhm, I mean previously owned)…
The overwhelming majority of buyers that I encounter in today’s market are asking about new homes and in the same breath about the best way to take advantage of this buyer’s market (translation: They want a deal). With my head spinning around, I wonder where is the best place to begin explaining what’s going on in the market.
On the date that I write this there are 13,512 Homes for sale in the Birmingham MLS. Of that number 476 (roughly 3.5%) are new and complete. Another 648 (5%) are under construction and another 213 (1.5%) are proposed for construction. The total possible new homes for sale at the present moment including proposed construction is 1337 or just under 10% of the current market. New home construction is down and with the number of active home builders greatly reduced from the first part of this decade, along with the increasing obstacles for home builders and developers it is likely to remain at or near the current level for the next couple of years and possibly shrink a bit with some additional tighten of credit already apparent.
That brings us to one of the few market rules that have not changed in the new definition of the market and what is now called the new normal: the law of supply and demand. The more there is of something, the more the pressure to reduce price; and contrastingly, the less there is of something, again assuming sufficient demand, the more the pressure to increase price. That’s not to say that prices are increasing in all new home communities. However, there has certainly been less of a tendency to heavily discount new home prices (barring other market issues), as builders and developers realize that they have a desired commodity that is at the moment in limited supply.
There are of course exceptions to this rule caused by a number of issues such as the following:
1. Neighborhoods experiencing a higher than average rate of foreclosures.
2. Neighborhoods which have experienced environmental issues: notably Chinese sheetrock usage, which will usually lead to more of issue number one.
3. Distressed builders selling under pressure to stay in business or in anticipation of departing the business; not usually a great record of home warranty fulfillment in such cases.
4. Poorly planned or located developments, low sales record.
All of these issues speak to the potential for poor future performance of the home as an investment. We do actually expect homes to return to that position in the next couple of years. Especially, those homes (new or used) purchased during this period of time.
Now all that sounds rather dry, almost clinical I suppose. What I haven’t mentioned is why home buyers favor new homes over those previously owned homes. First of all there is that desire to have a life… a home not in need of a lot of work that almost guarantees I can’t spend my weekends doing what I want. New Roof, New HVAC (Heating & air conditioning systems), new appliances… the desire for all the latest features, amenities, and colors … a home that looks and feels like the times! The desire for a clean home not filled with the odors and reminders of past occupants and their imperfections.
Next week, we’ll complete our survey of the new or “previously owned” home purchase options and how you can decide which is really best for you.
