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New Homes Price Increases Projected To Outstrip Resales

Written by on Monday, 29 April 2013 7:00 pm
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Is this a good time to sell your home? Could be. Especially if you plan to buy a new home.

New home prices are increasing faster than resales, a trend expected to continue for months to come, according to Brad Hunter, chief economist for Metrostudy.

Metrostudy is a national research firm that bases its projections on the personal inspection of every subdivision and development in 33 major markets, in which they do "first-hand" research.

According to Hunter, housing price projections are driven by new homes inventory, not MLS data.

"MLS listings should not be looked to for inventory price projections. Finished-vacant new home supply is a much better leading indicator for home prices," Hunter said, "We got into an oversupplied situation in 2006-2010 because builders built too many homes, and that overhang caused home prices to drop sharply."

"Now that builder inventories are low, there is once again upward movement in home prices. MLS listings, meanwhile, do not represent inventory, nor do they give you much useful information as to the direction of home prices."

Full disclosure: I have no direct or indirect personal or business affiliation with Metrostudy.

But the real question homeowners want answered and quantified is this: Is this a good time to consider selling my home?

Hunter says "Yes", if you plan to buy a new home. And "maybe yes", if you plan to buy a resale. "Understand that the price increase you are waiting for to sell your home will also be reflected in the resale home you purchase, so waiting to sell a resale to buy a resale could be a wash," he said.

Hunter is now projecting price increases of nine percent in 2013 in new homes subdivisions, and up to 11-15% increases in the best most saleable subdivisions and communities in the local market.

"The new housing numbers miss the true strength in the housing market. Many builders are raising prices and deliberately slowing sales," Hunter said, but the faster homebuilders increase prices, they more urgency they create for a new home."

"Resale home prices will rise as well, but not quite as fast; homebuilders will be driven by extreme cost pressures, and consumer demand will continue to strengthen this year, allowing builders to pass along the higher costs," Hunter said.

"Resale listings, now extremely low, will start to replenish. The main reason (on top of the recent investor buying spree) that there are fewer listings is that a large number of would-be sellers are holding their units off the market until prices go higher," Hunter said.

"It would not be surprising to see more homes get listed after another year of rising prices. That increased supply will then start to slow the rate of price increases," Hunter said.

"By 2014/2015, however, I believe the pace of escalations will slow down again. There are other factors on the horizon that will play a major role in market demand and thus prices in the near future, " Hunter said.

"The rate of increase in lot prices is completely unsustainable, so as the rate of lot price increase eases, the pass-through pressure will subside (in the next year or two)."

"When mortgage rates move from the high 3%s to the 6% range, which is likely in the next three years, the monthly payment will be 33% higher, and that will limit how much people can spend on a home."

"Also remember that an unusually large share of the home buying that has occurred so far has been by the move-up buyer. Once the first-time home buyers re-enter the new home market in large numbers, normal household economics will come back into play. Home prices cannot outstrip wage growth for too long. We've seen that movie before!", Hunter said.

Yes, we have.

So if you are thinking about selling, what should you do?

If you can sell (not underwater) and want to buy a new home, you should start taking steps to understand the money, and then decide.

The fact that interest rates are so low and the resale market so tight makes your home more saleable, a new home more affordable and your research worth the effort.

If you are moving to a new construction home:

  1. Ask a local production builder how much new homes prices increased in your area the last six months, and what price increases they project over the next six months or year.
  2. Ask your Realtor how much homes prices increased in your neighborhood the last six months.
  3. Ask the builder if they will accept a contingency contract if needed. A few might. Most will not.
  4. Ask your Realtor to help you. Their service is free.

Let's say that you can sell your home for $200,000 today and buy a new home for $250,000. Your research shows you that your home might sell for $210,000 in 12 months and that the new could be selling for say $280,000.

Should you sell and move or wait a year then move?

Only you can answer this question.

If you are moving into another resale:

  1. Ask your REALTOR® to give you a free estimate of what your home would sell for today.
  2. Ask your Realtor to include what homes in your market area sold for six months ago and project that price increase six month from now.
  3. Do the same thing for the area or subdivision in which you plan to purchase.

The important thing you are doing is objectively gathering the facts so that you understand the money. Once you understand the risks of waiting to list or not list your home you can settle down about what you need to do.

Let's say you decided to wait a year. During this time your $200,000 home increases 10% to $220,000 and the $250,000 resale you would purchase today home also increases 10% to $275,000, or $5,000 more in price than you gained when you sold.

The wait cost you $5,000 plus possibility of a higher mortgage payment.

The question may not be should you list and move now. The real question may be what do you see as being the disadvantage to you if you do- or don't sell now.

Note: Look for following columns that will simplify concerns and answer questions about today's confusing real estate market.

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  About the author, David Fletcher

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