2021 BOISE IDAHO REAL ESTATE BLOG
Market Impact on New Construction Homes verses Resale Homes in Ada County Main Meridian Homes for Sale

As requested, I did some research on new construction vs. resale. It really isn’t possible to look back to see exactly how many houses were listed as “Active” this time last year to compare to this year, so I usually base it on sold numbers. I looked at the new construction numbers and as suspected, found the largest price reduction was in the new homes.

 
As many people here realize, lot prices have dropped about as quick as they jumped, so the replacement cost of a new home has dropped accordingly. That coupled with the fact the new homes are sitting, costing the builders money each month with no functional utility, they are the first to get discounted when times turn slow.
 
The ratio of new home sales hasn't really changed much as both 2007 and 2008 ran just over 25% new home sales. Of the active listings, just over 19% of them are new homes.
 
In May 2007, the median sold price of a resale home in Ada County was $215,000 compared to $285,500 for a new home so just over $70K more for a new home. In May of 2008 however that spread dropped to only $10K!
 
I was surprised to see the median price of a new home closed in Ada County in May of 2007 was $285,000 compared to $209,900 in May 2008. Many things come into play on that including the fact builders are building more affordable size homes on less expensive lots and including less to start with.
 
I can't understand that with these types of numbers why some sellers are still sticking to 2007 mentality. I guess maybe they think gas prices are going up so their house price should too? WRONG. 
 
In Ada County today, there are 4,607 homes listed for sale excluding homes that show as pending; which have yet to close. The average list; is $318,215 and the median price is still listed at $254,900. These numbers are well above the market. The homes that are being price based on today’s market are still selling. Of these 4,607 homes, only 893 are new homes.
 
I spent nearly four hours today one on one with Chuck Byers, the former head of the Pioneer Real Estate School, discussing pricing models, valuation, and appraisals. I agree 100% with his comment that in a market like this, you need to determine your motivation to sell and figure out what amenities you have compared to the competition. He emphasized looking at all the variables including your motivation/need to sell and set the price accordingly!
 
Too many people think they should price the home a little high to allow room to negotiate down. Stop and think for a moment however, if you were the buyer, and you liked two or three homes offered for sale, would you ever start negotiating on the higher price one hoping to get it below the lower priced one?  If you start negotiating on the lowest price one and the counter comes back full price, isn’t it still the best priced?  Won’t it still sell?
 
 
Posted by Jim Paulson at 6/8/2008 1:36:00 AM
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Comments (12)
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
Jim, I generally agree with most of your comments, but the last paragraph in your post makes price the only factor. Buyers and buyers agents are looking for a deal, and maybe I'm wrong on this, but I'll bet full price offers are few and far between right now.

The parade of homes, from my perspective, had lower priced homes than in years past. I don't think they were just lower prices, but fewer amenities. Builders are trying to get to a lower price point. Lot prices certainly are the biggest factor and make the most immediate impact on the cost of a house, and there are some other items that have come down a little, but others have not. Meridian building permits have gone up and we all know the energy story.
I suppose your example of the three homes for sale is based on all three homes having equal value, and yet priced at three different levels. I'd say if I were a buyer, I'd try to get the seller of the one that fit me best to sell to me at a price that made me think I was getting a deal.
I really do think, in today's market, that for the most part, an asking price is simply what the seller would like to get, not what he will take. I say that and I have new homes for sale, but reality is reality.
By the way, I'd love to show you my subdivision, I think you would find it interesting and different.

Lonnie Johnson
Posted by on 6/7/2008 9:44 PM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
Good article Jim,

One thing I find surprising is that although price has dropped, it has been very firm in one area...Realtor fees. The 6% figure is pretty price fixed in. Even now, 6% of a 2008 home is much better than say 6% of a 2004 home... but I don't think the work has changed too much.

If you talk to sellers agents all you hear these days is price price price...which is fair, but also means the value of the agent is less (more like you need a good appraiser :-) )

Do you see any trends in buyers and sellers getting better pricing from the RE union? (yes I know buyers 'don't pay directly)

Thanks
Posted by on 6/8/2008 1:30 AM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
Lonnie,
Maybe I didn't word things as well as I should have, but price is only one of many factors! What I was trying to say was indeed if there were three equal homes, the one that is priced cheapest will typically sell the quickest if all other things remain equal as well.

Marketing makes a huge difference too. If you price your home 20% under appraisal for quick sale but the only people that know about it are the people that pysically drive by and see your sign in the yard, that isn't nearly as effective as pricing it at appraised value and posting it on hundreds of websites seen around the world!

Discounting the price isn't always as good as using that same discount to offer financial incentives to help the buyer thereby increasing the number of potential buyers for the home and increasing the odds of selling it!

You also need to look at the competition and understand how your product is perceived compared to it. For example, not all shoppers at garage sales are there just to buy other peoples junk. Some are art collectors and antique dealers looking for value that has not been realized by the seller. These dealers can pick up something, readiliy agreeing to pay the sellers price, only to polish the item up and sell it to a larger audience which recognized the true value and will hopefully pay the higher price.

I would be glad to take you up on your offer to see your subdivision. Feel free to call me on my cellular at 573-0471 or send me an email @ [email protected]
Posted by Jim Paulson on 6/8/2008 12:06 PM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
Jim

can you do another "buy now the market has bottomed post"

Thanks
Posted by on 6/8/2008 12:25 PM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
emdeplam,

Yes I do see buyers and sellers getting better pricing when using a Realtor (or as you say the RE Union).

According to the 2007 National Association of Realtors' Profile of Home Buyers and Sellers, the typical FSBO home sold for $187,200 compared to $247,000 for agent assisted home sales.

Posted by Jim Paulson on 6/8/2008 12:36 PM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
emdeplam, I am not sure what you mean by "another" "buy now the market has bottomed post" in that I don't recall ever writing one to start with.

The only time you should ever me state such things is when I am writing historically, but I am not in a position to ever say "today is the bottom", etc. I will forcast trends and market shift as I perceive them however.

Right now, supply exceeds demand in most of Ada County so until that begins to level out, we probably are not at the bottom yet. However, when replacement cost exceeds current costs (builders cant rebuild many of the homes at todays firesale prices) I do think we aren't far away.
Posted by Jim Paulson on 6/8/2008 12:47 PM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
Jim,

This goes back to what I have said in previous comments: perceived value between new and existing homes drives the market. In late 2006 the prices of new homes became so expensive that the perceived value of new construction deteriorated, making the perceived value of existing homes expand, and therefore new home inventory shot through the roof. As new home pricing comings down, and maybe surpasses existing inventory, we will see a spike in new home sales. When this 180 degree of perception switches the 893 new homes wont last long.
Posted by on 6/9/2008 6:47 AM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
That is a good point Scott, the problem builders have is that they have competition in the pricing of "new" homes, and that is banks and mortgage companies who are getting them back in foreclosures. The price of new homes to a builder is the total of all his costs plus what he needs to make added on. The price to a lender who has the new home back is what it takes to move it and how big a loss he is willing and able to take. That is the influence that has to be worked through before any real pricing stability occurs.
Posted by on 6/9/2008 7:34 AM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
Jim,

Great post. Id like to add a few comments a few things that anyone selling a home needs to remember.

No. 1 - The Buyer dictates the price, not the seller. This is true regardless of whether it is a good market or a soft market and regardless of whether you are a homeowner selling a used home or a builder selling a new home.

No. 2 Generally speaking, Buyers primary motivation is improving or enhancing their lifestyle. It is NOT Price.

No. 3 In the absence of a quality decision process, the decision to buy degenerates to the lowest common denominator PRICE.

No. 4 There are generally 3 reasons why used homes dont sell.
1. Theyre Overpriced
2. Theyre Not Properly Marketed
3. Theyre in Disrepair

If you are selling a home, regardless of whether youre a home owner or builder, the key to success is Market Research. You noted out in your post the importance of knowing the competition.

The seller needs to know the competition. But knowing the competition is more than just knowing the price their asking. Its also about knowing the age of the homes, their design, their amenities, their location and all the things related to location like the community, schools, and historical property values.

But understanding the competition is only one part of market research.

The seller also needs to know their target market. Who is most likely to want to buy their home? What are the demographics - age, household income, etc.? What are the psychographics what are their motivators for buying?

The seller also needs to do a REALISTIC assessment of their home. What are its features and benefits? What is a REALISTIC price based on everything the market research tells them?

Finally, the seller needs to market their home. Marketing is more than just putting a FOR SALE sign in the yard or listing it in FSBO or the MLS. Marketing is about educating prospective buyers. If the home is competitively priced, the seller needs to be able to show prospective buyers why it is a better value than the competition. If the home is priced higher than competition, the seller needs to be able to show prospective buyers why it worth more than the competition.

This marketing effort the research and the marketing requires a great deal of time and effort. This is what sellers should expect from a Realtor. In one of his comments, emdeplan suggested that Realtors should reduce their commissions as prices fall. I would argue that in a soft market, a good Realtor who puts forth the marketing effort Ive outline above, will earn every penny of their commission.

Chuck Miller GMB CGB MIRM CMP MCSP CSP
President / Builder Chuck Miller Construction Inc.
(208) 229-2553
[email protected]
www.chuckmillerconstruction.com

Posted by on 6/9/2008 10:13 AM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
For those of you that say..."we are not far away"...

FHA...loses 4.6 B will curtail 0 down lending...insolvency rumors
Wash Mut...insolvency rumors, stock plunging
HSBC, shutting operations on lending in US (quietly)
LEH - Bear Sterns Death Spiral
US financials broke Bear Sterns low..
Freddie and Fannie- TBD but likely insolvent

When loans STOP who is going to buy houses?

We have seen major 4 sigma bond market events this week. The beast is sick, very sick,

Just look at FHA alone as a % of lending now versus 3 years ago...WHEN (not if) they dramatically cut back programs and lending, who will be the new lender?
Posted by on 6/10/2008 4:34 AM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
Thanks to everyone for the great feedback on this post.

1) I took Lonnie up on his offer to tour his community in Meridian which is called Alexandria. It is very nice and he has a great theme going. Thanks for the time you spent with me onsite.

2) Chuck, you are exactly right with your comments. Want to get your real estate license and join my company? (grin) I find it interesting that with the rise in inventory we have had recently that the size of the "for sale by owner" books have dropped in homes for sale. Many sellers "try" to sell themselves and convert over to Realtors when they realize it isn't just about a sign in the yard and a single source website.

3) emdeplam, I think the answer to the question on who will be the new lender is FHA. In the past five years, I didn't use FHA at all I don't think in selling homes since they were not competitive. When there were tons of companies offering 80/20 loans with no PMI, why use FHA? Now those lenders are pretty much gone and FHA is back in business. Also, our median house price was above the FHA limits, and now that they have raised their limits, we can use them again for more homes.
Posted by Jim Paulson on 6/10/2008 5:47 PM
Re:Market Impact on New Construction Homes verses Resale Homes in Ada County
Jim,

My post was to address what I feel is the coming insolvency of FHA

Let me repeat: F.H.A. is solvent, Mr. Montgomery said on Monday in a speech at the National Press Club. However, no insurance company can sustain that amount of additional costs year after year and still survive. Unless we take action to mitigate these losses, F.H.A. will soon either have to shut down or rely on appropriations to operate.

This is from an FHA commisioner...they will have to drastically tighten stds and even then I believe they are done.

If you pulled FHA loans from the market what would that do to prices?
Posted by on 6/11/2008 2:10 AM
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