Housing Market - New Builds - why doesn't the purchase price ever drop?
September 16, 2015 4:06 AM Subscribe
I live in an expensive housing market. All the older homes in my area are being knocked down and huge new houses are being built on the lots. These homes stay on the market for extensive periods of time (over a year) without any drop in purchase price. How can builders afford to do this?
Is is that builders buy old homes so low (in this neighborhood, low would be about 800K) that they've worked out the math so that even if they wait over 365 days for a home to sell, it still works out financially in the end? Is there some other reason builders can't drop the prices on their new homes?
Is is that builders buy old homes so low (in this neighborhood, low would be about 800K) that they've worked out the math so that even if they wait over 365 days for a home to sell, it still works out financially in the end? Is there some other reason builders can't drop the prices on their new homes?
Best answer: They aren't dropping their price because they think they'll find a buyer at full ask. It costs them give or take 8% on their investment (rule of thumb, $200k less than their asking price) per year to wait, so that's the measure of their confidence in that expectation.
If that seems overconfident to you -- the lesson of 2007-2009 in very upscale markets was that it was smart to hold out, and stupid to drop your price. Builders are ALWAYS refighting the last war...
posted by MattD at 7:13 AM on September 16, 2015 [1 favorite]
If that seems overconfident to you -- the lesson of 2007-2009 in very upscale markets was that it was smart to hold out, and stupid to drop your price. Builders are ALWAYS refighting the last war...
posted by MattD at 7:13 AM on September 16, 2015 [1 favorite]
Best answer: What everyone above said.
If anyone noticed Builder XYZ had a pattern of dropping prices after a year, that would quickly become public knowledge. People are often willing to wait a year to get into the house/area of their dreams.
Houses aren't cars that lose value when driven off the lot. They're homes, and far more intensely personal - so they aren't traded like any other commodity on the market. Hell, I was prepared to pay 20% more than the eventual sale price on a house in my previous neighborhood - but it wasn't on the market in my time frame.
posted by IAmBroom at 8:34 AM on September 16, 2015
If anyone noticed Builder XYZ had a pattern of dropping prices after a year, that would quickly become public knowledge. People are often willing to wait a year to get into the house/area of their dreams.
Houses aren't cars that lose value when driven off the lot. They're homes, and far more intensely personal - so they aren't traded like any other commodity on the market. Hell, I was prepared to pay 20% more than the eventual sale price on a house in my previous neighborhood - but it wasn't on the market in my time frame.
posted by IAmBroom at 8:34 AM on September 16, 2015
This thread is closed to new comments.
posted by ghharr at 7:10 AM on September 16, 2015 [1 favorite]