Real estate prices: This decades-long trend has been “turned on its head”

Since the mid-Nineteen Eighties, latest homes have generally been dearer than existing ones, says Howard Hughes Holdings CEO David O’Reilly. said CNBC on Wednesdayadding that it had shrunk 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 brand 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 12 months over 12 months to a brand 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 in addition to multiple offers.

The reason for that is that the lock-in effect within the housing market keeps the provision of existing homes tight because homeowners with low mortgage rates are reluctant to provide up on their homes and don’t 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 concerning the sector, declaring in April that that is the “golden age of housing.”

The reversal in home prices for brand spanking new construction versus existing homes can be attributable to the $200,000 entry-level home becoming increasingly rare, making it harder for first-time buyers to enter the actual estate market.

“In recent years, the number of homes under $200,000 has dropped from about half of all sales to less than a quarter of sales in 2023,” Realtor.com said in a report Earlier this month, he called the statistics “clear evidence of declining affordability of the cost of living across the country.”