Since the mid-1980s, new construction has generally been more expensive than existing homes, David O’Reilly, CEO of Howard Hughes Holdings, told CNBC on Wednesday, adding that that price has been falling in recent months. Now it’s gone.
“Today’s result shows that everything is exactly the opposite,” he said.
In May, the median sales price for a new home fell 0.9 percent year-over-year to $417,400, the Commerce Department said Wednesday.
In contrast, the median sales price for an existing home rose 5.8 percent year over year to a new record of $419,300 in May, the National Association of Realtors said earlier this month. According to NAR, this reflects more sales of high-priced properties as well as multiple offers.
And since the beginning of the year, prices for existing homes have risen even more steeply: They rose by 10.8 percent from $378,600 in January. For new homes, they were $430,400 in January.
The reason for this is that the lock-in effect in the housing market keeps the supply of existing homes tight because homeowners with low mortgage rates are reluctant to give up on their homes and do not sell. However, demand has remained high, increasing price pressure.
Meanwhile, homebuilders’ latest quarterly reports showed average selling prices falling, O’Reilly said, citing a shift in product mix.
“This shows that the consumer is getting used to a smaller home, needing less space and trying to get back into that affordability range,” he said.
O’Reilly, who heads the property development and management firm that also works with builders, is optimistic about the sector, declaring in April that this is the “golden age of housing.”
The reversal in home prices for new construction versus existing homes is also due to the $200,000 entry-level home becoming increasingly rare, making it harder for first-time buyers to enter the real estate market.
“Over the past few years, the number of homes under $200,000 has declined from about half of all sales to less than a quarter of sales in 2023,” said a Realtor.com report earlier this month, adding that the statistic is “clear evidence of declining affordability across the country.”
