The Housing Price Gap

For the past year or so, Valley real estate agents have sought refuge in the new-home market. With buyers tiring of foreclosure bidding wars, the path of least resistance has been to march clients into new-home sales offices, complete with easy financing packages, and pitch them on the perks of a new home. Some buyers are taking the bait. But new-home prices remain stubbornly high, leaving the question of whether today’s real estate splurge will hold water tomorrow.

According to the Southern Nevada Home Builders Association (SNHBA), Las Vegas median new-home sales prices are hovering about $200,000 today. Median resale prices are around $130,000, or about 65 percent of new pricing.

But in a stable market, resale homes should be selling at 80 to 90 percent of new-home prices, says Brian Gordon, a principal with economic research firm Applied Analysis. The pricing difference between resales and new homes remained in this range from 2002 to 2008—even during years of rapid inflation. But the gap started to widen as the recession took root in 2008. It has been at its widest since 2010, potentially putting new-home buyers into negative equity situations once they move in.

It’s no secret that home builders are seizing an opportunity to sell at higher prices to tired buyers. Permitting activity is climbing, and 2012 new-home sales are about 50 percent higher than last year’s all-time lows. Some recent small dips in new-home prices are a step toward stability, Gordon says, but there’s still a long way to go. “There is no question that the housing market continues to reflect the impacts of the boom-bust cycle.”