New study questions new home-resale price gap

It’s become a local market truism: If you want a new home, prepare to drop $100,000 more than you’d shell out for a resale.

But new research — admittedly sought out by homebuilders — shows that pricing gap may be overstated. That exaggeration is a problem because builders say it means some real estate agents and consumers bypass new-home subdivisions altogether. That in turn hurts sales. And where there’s less homebuilding, there are broader economic effects.

To see why some home shoppers may be sitting out the local new-home market, start with that price differential. Local housing research firm SalesTraq pegged the median new-home price in May at $280,168 — nearly $113,000 more than the median resale price of $167,500.

Observers say that difference may be at least a small factor in dwindling new-home sales, which were down 25 percent year over year locally from January to July, according to Home Builders Research.

For Nat Hodgson, executive director of the Southern Nevada Home Builders Association, the gap didn’t ring true. So Hodgson got a hold of some recent analyses from First American Title Co. He also asked the folks at SalesTraq to take a second look.

Both groups found that the actual price disparity is considerably smaller than stated. Sometimes it’s nonexistent. And sometimes the new home is actually less expensive than its resale counterpart.

Why is the real spread narrower?

Part of it is that existing homes are smaller and older than new homes. The average size of a resale in March was 1,834 square feet, or 535 square feet smaller than the typical new home’s 2,369-square-foot average. That alone would account for about $60,000 of the price gap.

Resales are also considerably older, at an average age of 22 years. That brings a discount on factors such as newer technologies and energy efficiency, which is 30 percent higher in a new home, Hodgson said.

Enter First American Title’s analysis, which allowed for square footage and age.

The company looked at eight size categories of new homes built in 2013 or 2014, and weighed their prices against like-sized resales built in 2009 and 2012. Researchers excluded distress-related closings, such as short sales and foreclosures.

Their findings? The biggest average gap — among single-story homes with 1,500 to 2,000 square feet and three bedrooms — was $22,700. Among two-story, three-bedroom properties with 2,500 to 3,000 square feet, the new homes actually cost $27,500 less. Overall, the average difference across all eight categories was just $4,400 — or 4 percent of that officially stated $112,668 gap.

Removing distress sales from the equation is important because they skew the market, observers said. The Greater Las Vegas Association of Realtors reported an average sale price in July of $161,203 for bank-owned properties, and $165,000 for short sales.

“There’s been a significant amount of distress in the market, so you have homes selling at levels that were below replacement cost,” said Brian Gordon, a principal of SalesTraq. “Those dynamics highlighted the gap between new construction and deeply discounted resales. That disconnect can create the perception that new-home values are overpriced relative to the market. The reality is, they’re different.”

And they have different markets: People who buy distressed homes tend to be investors, said Steve Brown, director of the Center for Business and Economic Research at UNLV.

What’s more, there aren’t enough resale homes for buyers, Gordon said. The market has a three-month supply at current sales rates. That’s about half of the six-month supply a healthy market would have.

The resale market’s share is also out of balance, Hodgson said, and that carries bigger economic implications.

Today, resales make up about 90 percent of local home sales, compared with the 65 percent or so they’ve traditionally claimed. With new homes squeezed down to about 10 percent of the market, job growth suffers, he said.

“Resales don’t really generate jobs. New homes create jobs and municipal and state revenue (through permitting fees and materials sales taxes).”

Contact reporter Jennifer Robison at jrobison@reviewjournal.com. Follow @J_Robison1 on Twitter.