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Could the price gap between existing homes and new construction homes start to shrink?

Last month, the median price of newly built homes was $269,800, 21 percent higher than the median price of existing homes, according to the Wall Street Journal. In July 2008, the pricing difference between the two types of homes was 12.8 percent, and in July 2007, it was 7.8 percent.

After the financial crisis, median prices of existing homes were dragged down by resales of foreclosed homes at discounted prices. Meanwhile, in the new residential construction market, builders produced bigger, more expensive homes targeted at wealthy buyers who still had purchasing power.

However, the two markets went on opposite trajectories last month; new home sales decreased 2.4 percent from June to July to a seasonally adjusted annual rate of 412,000, according to figures released by the Commerce Department on Monday. A healthy annual rate would be around 800,000.

Sales of existing homes rose 2.4 percent last month to a seasonally adjusted annual rate of 5.15 million, according to the National Association of Realtors. That’s the highest level since September. A “normal” sales rate, given the size of the population and employment gains, would be 5.5 million or more.

Economists predict that builders will start to create more reasonably priced homes, as first-time buyers gradually return to the new construction market. In addition, builders could encounter more competition from the increasing supply of new homes and less expensive existing homes. “The growing inventory could help slow down the price increases on new homes,” Jed Kolko, chief economist for Trulia, told the Wall Street Journal.

Kolko told the Washington Post that normally, six existing homes are sold for every new home. During the housing crisis, 14 existing homes were sold for every new home. Now, that ratio is more like 12.5 to 1, even though 41 percent of Americans surveyed by Trulia said they would choose a brand-new home over one with previous owners.

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