NEW YORK (MainStreet) -- People who would never, ever buy a used car will happily pay hundreds of thousands of dollars for a used home. In fact, we don’t even call them used – they are "existing homes," which sounds less likely to be worn out.
Nonetheless, there are pros and cons to new versus used, and the issue has become more important recently because of the soaring premium paid for new homes.
As a recent blog post in SmartMoney put it: “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 gap is widening because foreclosed homes and other distressed properties are changing hands at fire-sale prices, typically at a loss for the seller. That drags down prices of existing homes nearby. Meanwhile, builders can cut prices on new homes only so far given the cost of land, labor and materials. Builders won’t build if the sales price won’t provide a profit.
For most buyers, new versus used is not a critical issue. People pick a home they can afford that appeals to them, and there’s not much difference between a brand new home and one that’s 10 years old. Some buyers prefer the styles of homes built in the past, but the fact that those homes are older is usually not itself an important selling point.
But when the price gap between new and used gets as wide as it is now, shoppers really should think twice about whether it’s worth paying a premium for a new home. So, what are the pros and cons of each type?
The key is to try to go past sales price and try to figure a total cost of ownership over the time you’re likely to have the home, just as you might consider financing, fuel, maintenance and insurance costs in comparing the cost of one car versus another.
Newness certainly has some financial merits. A new home probably won’t need a new furnace or roof for a few years. The kitchen will be up to date, the paint fresh and so on.
A new home might be more energy efficient than a very old home, with better heating and cooling, more insulation and tighter windows. But this benefit may not be as pronounced if the existing home is only a few years old.