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New Homes Can’t Compete With Foreclosures

Discounted prices. Closing credits. Flashy appliances. Home builders tried throwing everything — including the kitchen sink — at buyers in an attempt to boost new home sales. But for many buyers, new homes still can’t compete with existing properties that get cheaper by the month.

According to new figures released this morning from the S&P/Case-Shiller Home Price Indices, prices fell for the fifth straight month in January and are down about 4% compared to a year ago. As a result, the price difference between new and existing homes keeps growing bigger. The median price of new homes sold last month was $233,700 compared to $157,100 for existing homes. That $76,600 difference is up 27% from last year and up 57% from 2010, according to the National Association of Realtors. In fact, since 2006, the price gap has more than tripled.

The driving force behind this trend is all the foreclosure and short sales that sell at substantially discounted prices, experts say. For the buyer, purchasing an existing home means making a smaller down payment and signing up for a smaller loan than they would with a new home. “Faced with a choice, few people are going to pay extra just to be the first person to live in a home,” says Leonard Baron, principal at LPB Services, a real estate consulting firm in San Diego, Calif.

To be sure, new home sales are improving slowly. While they fell 2% from January to February, they’re up 11% compared to February 2011, according to the Commerce Department. But their current annualized pace of 313,000 sales last month falls short of pre-downturn figures. In a healthy housing market roughly one million new homes sell each year.

Hoping to restore the appeal of new homes, builders are offering buyers a new wave of deals. For instance, Land Development and Building rolled out incentives last week in an attempt to sell off new cottage homes in Carmel, Ind. They’re offering up to $7,000 that buyers can apply toward closing costs, new home furnishings or a completed basement, among other enticements. (Homes are normally sold with unfinished basements.) “With the market starting to strengthen, we want to create a program to get some of those buyers who are on the fence to purchase a home,” says a company spokeswoman.

Separately, builder K. Hovnavian Homes announced this week that it’s working on seven new “value-priced” townhome communities in New Jersey and Pennsylvania, touting their affordable sticker prices. The pricing is largely meant to entice renters to buy, says Randy Brosseau, the company’s northern New Jersey president. He says a comparable rental property would cost more per month than the new homes, which start as low as $300,000 in some markets.

Luxury home builders are also rolling out new deals. In San Diego, Newland Communities offers incentives on the remaining high-end homes in its “4SRanch” neighborhood. Prices start at around $651,000, including a $10,000 flooring credit. And last month, Weber Homes slashed starting prices on luxury homes in Mountain Lakes, N.J. from $1.32 million to $980,000. Of the 20 homes that hit the market roughly a year ago, 14 are still on the market, says Chris Fry, a sales manager for the company.

Beyond upfront cost-saving initiatives, builders are touting savings associated with living in the home. Hovnavian is marketing its new communities’ proximity to public transportation, for instance. Lennar over the past few years has been touting its energy-efficient homes that reduce owners’ monthly energy bills; the company today reported a 33% increase in new home orders for the first quarter. David Crowe, chief economist at the National Association of Home Builders, says builders are trying to appeal to buyers by addressing their energy-costs concerns within the home as well as their commute to work.


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    • Aaron, great article. You wrote: At the end of the day, short sales sell for far more money than they do as an eqaivulent foreclosure so each failed short sale means thousands or tens of thousands of dollars more value lost I see that the chart shows that on average short sales sell for more than foreclosures but have you ever seen data or data on a house that was in short sale, had an offer, the bank would not except it so it went into foreclosure and sold for less then the short sale offer? Just curious If so, why do you think the banks are reluctant to accept short sales? Reply

    • The site is garbage. One of those bsiluhlt; where you do a search term; for free; listing and click in and find out that it is a stupid; filthy; 7 day trial. Last time I checked; one is NOT; suppose to pay to see foreclosed listings. Lucki;y; I know of 3 sites; with completely free listings.2; are multiple listings from many companies; and one is; from one company; and the lowest; prices are $4k for a home oh; and fuck you.

    • Forclosures are the way to go in the right circumstances. You need a lot of patience and stick to it while making tons of offers that do not go through. You need to be quick and ready to jump. You need to know your numbers comparing price per square foot for neighborhoods. Short sales can be maddening working with unmotivated sales agents and slow lenders. It takes a lot of patience and persisitance and a good agent is valuable.

      I have seen new homes for sale a few blocks away from the same model as a forclosure sale selling 35% more. The price may reflect the nirvana experience of a smooth experience sliding into your “I’ll take the green one” house.

    • If one can buy a home bld in 2012 for. 180k, why would i want to buy a 20 year home for 150k?

    • New homes still represent a great value, even against a foreclosure. Stop looking at the purchase price unless you are paying cash. Foreclosures cost at closing. Depending on your locale, that can be 3% to 5% of your purchase price. Many builders are offering to pay buyer’s closing costs. New home interest rates usually obtained thru your builder are at historic lows with many incentives. Foreclosure financing will typically require 20% down. FHA and other government programs can have a down payment as low as ZERO! New homes typically offer lower property taxes and insurance costs as well. A foreclosure will normally need work which takes money. A new home is going to come with NEW everything and warranties. A first time home buyer’s dollar goes a lot farther than one may think in today’s market.

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