Cost-conscious consumers cut new-home prices

If you are looking for some long-term effects of a five-plus-year real estate downtown, look no further than new-home prices.

Not that it hadn’t been anticipated, considering that the bulk of foreclosures have been concentrated in new-home centers such as Phoenix, Las Vegas, California and Florida. Bank-owned and short sales are also highest in those states, and that chisels away at prices.

It appears, however, to just more than price declines.
Richard Palacios Jr., a senior research analyst with John Burns Real Estate Consulting, reports that since new home prices peaked in 2007, new single-family sales of more than $500,000 have been more than cut in half, dropping from 13 percent to just 6 percent of all new home transactions.

During the same period, sales of under $200,000 have risen from 33 percent to 42 percent of transactions, he said. In fact, sales of homes priced under $300,000 now account for roughly 75 percent of all new single-family transactions.

Palacios points out that price declines and a shift to smaller homes played a role in this change, but consumer attitudes have shifted too.

“Our surveys and our consulting work show that today's buyer is frequently very focused on affordability, and this broad macro theme will continue to play itself out in the new home space during 2012, he said.

Although buyers have migrated to smaller, more affordable homes, Palacios doesn't think this is bad news for the highest-end builders — in fact, there is far less competition for new luxury homes than there used to be.

“Also, luxury home buyers are current homeowners who frequently have little urgency to buy and the majority of them have plenty of equity in their current home,” he said. “While affordable entry-level homes have clearly taken market share over the last few years, we expect luxury homes to increase in numbers as the economy improves.”

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