Today's Home Price Gap is 19% Larger Than 2008 

I’m in Ohio and the housing market here over the last 7-8 years is unlike anything I’ve ever seen. Homes that were bought for $130K in 2015 are now being sold for $590k. I’m talking about tiny, disgusting, poorly built 950 square foot shit boxes in quiet mediocre neighbourhoods. Then you’ve got Better, average sized homes in nicer neighbourhoods that were $300K+ 10 years ago selling for $750k+ now. Wild times.

Back in the day, when I purchased my first home to live-in; that was Miami in the early 1990s, first mortgages with rates of 8 to 9% and 9% to 10% were typical. People will have to accept the possibility that we won't ever return to 3%. If sellers must sell, home prices will have to decline, and lower evaluations will follow. Pretty sure I'm not alone in my chain of thoughts.

Mortgage rates are currently at an all time high since 2000(23 years) and based on statistics on inflation, we might see that number skyrocket further, a 30-year fixed rate was only 5% this time last year, so do I just keep waiting for a housing crash before buying or redirect my focus to the equity market

The problem with these new homes are those horrible HOA Karens.

On the ground level it’s scary that houses are worth more and more, when they’re being built extremely poorly. I’ve seen many home inspection videos showing how low quality these homes are. Sellers in this market are blatantly extorting and scamming buyers. Supply is so tight buyers seem to have no choice but to accept this.

I grew up in an area of Miami that is mostly made up of * middle-class Cuban Americans where just five years ago a house would cost 250-350k for the most part. Now the cheapest one goes for 600k. Forget working class being able to afford them. A professional lawyer, engineer, etc. would now struggle to buy a home in that same neighborhood. Something needs to change and it will change.

Great video! For 2024, it’s hard to nail down specific predictions for the housing market is because it’s not yet clear how quickly or how much the Federal Reserve can bring down inflation and borrowing costs without tanking buyer demand for everything from homes to cars.

Sometimes blue is new construction and blue was existing homes- so confusing. Make it the same through the whole video

I was just looking at a house that sold at the end of 2019 for $484,000 when you could financed for 3.75%. It's now on the market for $780,000 and would need to be financed for around 7%. In 2019 with 20% down that is a $2,218 monthly payment. Now it's $4,551 and your downpayment cost you an extra $75,000. This is absurd. A 63% increase in sale price and a 100%+ increase in the monthly payment.. in FOUR years. And I bet it sells for full ask too... I do understand how this keeps going.

I took the data you guys presented about new vs used homes a few months ago in another video. So we went new build shopping and secured a new build with them buying down my rate to 5% fixed, closing cost covered and 30k off price tag. Thank you for sharing the data!

The problem is that much of the new homes are in areas that people no longer want to move to.

Much better than most housing market stuff on YT. Only thing missing is the severe underbuilding from 2008-2018 leaving us at a structural deficit of available housing relative to population growth.

AFAIK: Almost all New Construction comes with an HOA, because the local governments will not issue development permits for subdivisions without an HOA in place to protect income tax revenue. Can you look into / report on whether HOAs are a factor at all? Personally, the main reason I don't buy a new home is the HOA.

In Canada, developers have been catering to speculators and investors, building tiny shoebox condos. Well investors are gone now and guess what: nobody wants to buy a 400sq foot condo to live in. At least not at these prices.

In other words, the high interest rate is actually keeping the existing house prices higher as nobody will move out of their existing house and take a mortgage at the current rates, so the supply stays low. So paradoxically high interest rate is now driving home price inflation.

For newbies, be aware that this is a grossly oversimplified scenario. For one thing, you can't get a mortgage on an investment property without at least 25% down payment. Two, it's easy to see comps for house purchase prices, but it takes a lot of research to understand the comps on rent prices. The trick is to find a place where renting is more expensive than buying, but those places are less common because of this very type of scenario. Three, you have to remember that rent number he's using is supposed to be net income, not gross. So you have to think about costs for taxes, insurance, maintenance and vacancy when you're researching investments. All that said, real estate investing is a good tool for wealth accumulation. But it isn't foolproof.

New homes are too far away from city centers nowadays. I'd rather buy an existing home in an interesting area with things to do nearby than in a new suburb in the middle of nowhere. This is becoming especially important as US population stops growing and even begins contracting, potentially leading to a Detroit-style collapse of the suburbs.

That’s because the existing homes have a loan on a non bank entity’s or non-government enterprises balance sheet . They lever up with that equity. A brand new loan can be subsidized by inflated prices and home values without crushing the existing loan books. The system is so fragile that if home prices went down even a little it can bring down the house of cards.

Thank you. Your videos are so informative, unbiased, and clear.

This is absolutely a lowered price discovery situation. Sellers are legit delulu in CRE and residential

Another outstanding market summary. Thank you.

Great video. Thank you for sharing

Excellent analysis, thank you. You have improved.

ur videos r amazing, the animations r crisp!

You can’t compare new homes and existing homes like fruit. New homes have better building codes, more energy efficient but usually are smaller but come with garages. The homes themselves are better but are usually in communities with strict HOA rules, little to no privacy and the builders finance your loan at a lower rate in order to be able to sell their homes. Resale/exisiting homes are usually older designs but remodeled, no HOA, and the best part is in the BEST LOCATIONS. That is one huge thing resale’s have on new homes because the best locations are usually taken up already. Now, all that said the result of what is best for you depends on you not on everyone else’s factors.

Very informative video! It seemed like you were making the point at the very end that the only way we get out of the deadlock of high home prices is by keeping the real interest rates positive, which will result in fewer new home builds and mass unemployment due to builders letting people go. Did I understand your point correctly?

Best economics channel in RU-vid, thanks

I love your videos! I'm an engineer and appreciate a data driven approach to understanding current trends. Thank you and please keep it going!

Where are these cheap new homes at? I’m not seeing anything here in the Atlanta suburbs that’s under $300K beside bombed out buildings that look like they were transported here from Beirut.

Great research. It was really informative

yeah. savvy developers trying to get these houses off before a big ass crash and less savvy home owners trying to wait for a peak

People don't understand that mortgage payment is only one of the costs of owning a house. Insurance, maintenance, tax, ... are all going up so many cannot afford their house even though they are still locked in a low mortgage !

Thorough video. Maybe the most important factor here is that 85% of the housing market in discussion is existing home sales which you mention after over 10 minutes. I would include that upfront so viewers will better understand housing price stubbornness now and going forward. I am a new subscriber...thanks

Really thoughtful and well presented data and assertions. Thank you! One crit on the data viz. It would be helpful to keep the usage of colors representing new v. existing consistent through your charts, so your audience does not need to track the legends once they learn your usage of red v. blue representation. The colors flip-flopped through your video, so I had keep re-evaluating your charts while listening to your talk track. Not a huge deal, but it definitely would be easier to track to a consistent representation through the entire video. Thanks!

Thanks for your great videos. I would be curious to know if there is a metric for age of home buyers. What generations are buying homes and which is not. Curiousity.

Great great info.

Hi, towards the end of the video you mentioned higher unemployment from QT will overpower the low supply situation. Can you expand on that? What does that mean? Awesome video!

Subscribed. Upvoted.

New and existing homes in my neighborhood have sat unsold for 6 months. Nothing over $350k or so sells.

I doubt this data exists in a useful format but I’d be interested to see the percentages of new/existing homes within certain radii of work centers. All the best places to work already have nearby homes, that’s why they’re not going down. The land is cheap in the middle of nowhere and that’s where builders are expanding to.

It doesn't matter. They're gonna keep going up.

In rural West Kentucky, town of 20k, county of 40k, you can’t get anything three bedroom (1,200sqft) under $150k unless the gutters are falling off and the windows are boarded up, and those still bring $125k.

In MD, our wages went up around 24% however we've been priced out of the housing market for decades.

In some of the cities with price declines, there is also net outbound migration In some cities, like Atlanta, part of the issue is net inbound migration -- specifically of people from other states with high incomes

Top shelf content

I suspect the reason for the deviation is almost exclusively Price Discovery related, with maybe a little location benefits underlying the added valuation. It makes no sense your depreciable structure would be worth MORE when built earlier

how did you make this? after effects?

One of the key contributors for inventories levels of existing homes being so low is the historically low mortgage rates those home owners have. A recent report (Alto Research I believe) states over 78% of existing US mortgages have 4% or lower rates. the combination of buying and refinancing has put us in a tough spot as far as normal market buying and selling activities. A really good data point to understand is the % of existing homes on the market that are non-primary residence (vacation or investment properties). I suspect we are seeing a significantly higher number of non-primary residence homes on the market which means less people are actually moving. We are in a home price stall period and will need 18-24 months of continued downward pressure to bring home prices back to normal historical trend alignment. Very frustrating to see existing homes listing for 40% higher then they should be. Additionally this downward trend of sales activity is putting pressure on the new home as both permits and new build starts are trending lower. Architect billings for multi-family residence is also trending down which means we have to get inventory increases from existing homes to help. Not sure how we will get out of this mess, but I blame the 2020-2022 bubble and the continued resistance of existing home prices falling back in line with historical trends. Best of luck for those that need to buy and sell in the next couple of years.

you talk about location in terms of some cities vs others, but one of the issues for demand vs supply is that the younger generation doesn’t want to move to the suburban fringe where a lot of new SFH are built. So it’s not just that the new homes are smaller, they are in the wrong location given the preferences of a younger generation, one that has less kids and does not benefit from or enjoy suburbia

Good video. One thing not covered is the difference in existing homes vs. newly built homes, both in home quality and location. Many of the newly constructed, "spec", housing... is simply not as well built as it was over the past 20 years. (Look up any videos on home quality issues from the major housing builders, especially the largest one.) Then, there is location. Many existing homes are simply better located, closer to city cores, "people's jobs", etc. New homes... built on former farmland, filled in land (with potential settlement issues... do your research), etc. And, these locations usually have poorer transportation access and government amenities such as parks and schools. Good land is getting hard to come by, and well built houses (for a good price) generally can't be. Sure, you can find distant land and pay more money to custom build a home, but now you don't have the good location... or the good price. And, all of this... is at the local level, not even covering entire city markets.

This doesn’t seem to account for the fact that new developments are more likely to be built in worse locations (desirable locations having already been mostly built on. Then also, it seems new builds are more likely to have an HOA, or have a higher HOA, than existing homes.

Instead of Average what about median? Also, in my area new home prices are skyrocketing

I guess you don't see it by looking at the charts but in short nobody wants to buy and nobody wants to sell. It totally makes sense too in this environment.

Another reason existing selling for more?: Homes in prime locations sell for more. There's not a lot of new homes in prime locations since that space is already built and where there's lots of new construction are often less desirable locations.

in my overpriced/overbuilt ski town for-sale signs are flying up over the last month. this summer will be a bust for real estate. building will crash soon after. then come the layoffs. our economy is in a tailspin held up by borrowed money that is running out quick.

but is it also possible that the difference is due to the geographical locations of the new builds, given that location matters in the home valuation?

I wonder if there's a data-driven way to explain this 'old houses are more expensive than new' as a function of building quality and location. Two cases studies: where I live in the MN twin cities, there is a rare, major redevelopment in the middle of town, where new empty lots start at $500k, and new 1800 sqft town homes start at $800k (the townhome lot is smaller). A few blocks away, old homes are$400-700k, depending on size and quality. All these prices are nuts, but I bring it up bc the majority of empty lots and new homes are in the 20 miles away in the suburbs, where they're generally mcmansions or townhomes for roughly half the price per ft2. My point is this: I almost don't care how cheap those suburban houses are, I'm never moving there. I refuse to commute for hours every day, and I don't want a huge house or a town house, so I've resigned myself to likely never living in a new home, but look forward to living in a location I like. Perhaps many others are making the same decision

@EPBResearch I would love to see how you modify your analysis after conferring with Nick Gerli at Reventure (if you haven't already).

Low supply situation isn't going to be cured by unemployment. If/when builders stop delivering product due to a recession, it will only exasperate the situation. Population isn't decreasing, thereby, demand for shelter is growing, not shrinking. Households may be doubling up with generations or accepting smaller housing units due to affordability, but demand isn't being destructed in the US (yet).

In Canada the gap is about 300 percent higher than in 2008. Everyone except the richest is shut out of our housing market forever.

Wow this is good content

Nice video EPB. The New vs. Old homes comparison is meaningless right now because this global real estate crash has just started and real estate prices across Australia, New Zealand, Canada, USA, China and Europe will crash down to their 2012 levels within the next few years. Caveat Emptor!!!

Contractors and architects still quoting in the $400/sqft range in my area. I would love $200/sqft lol.

Amazing

This video was interesting. Haven’t really heard anyone point this out yet.

new homes and existing homes are in generally different areas as well.

I live in St Louis and bought my 3 bed 2 bath home for 168k in November 2022. One of the best cost of living cities but also statistically a very dangerous place to live.

the quality of new homes especially for appartments/townhomes are awful companies are cheaping, not only that but they decrease the square footage in order to get additional value apartments used to be 900/1000 sqr ft for 2bedroom 2 bath down to 550-650 at least in the vancouver area so it would make sense people are willing to pay less since they are getting less

thanks

I feel like a graph showing average price per square foot versus just total cost might be more accurate? Lots of tiny home communities being built might be dragging that average new home cost down.

The other problem is this is an income growth economy, not a credit growth economy. Higher rates won't have the same effect to slow things down as credit isn't the driving force.

What does "an overpowering of the low supply situation in the existing home market" at the end of the video mean for existing home prices? They will continue to skyrocket if the fed holds interest rates high? Please explain for someone looking to get into a starter single family home

one of the major reasons for the new homes being cheaper than the old homes is location location location. The older housing stock is closer to the urban core, and those properties are getting a boost. Those interior properties have rising property and land values. Meanwhile the newer less established neighborhoods are the ones with the new homes, and those are further away from the city centers. Thus they cost less. The extra cost is in travel and time expenses. However, as these outskirt area get larger, they inevitably become their own nodes and centers for commerce - or they just SUBURBANIZE to death.

New homes around the mid Atlantic region are on tiny lots, townhomes, or condos. They are really undesirable. The ratio of price / (sq.ft + ∆ * lot size) seems like a much more accurate indicator.

For this kind of analysis, it's important to take the first through third rules in real estate into account: 1. Location 2. Location 3. Location New housing starts are being built in less desirable locales far from city centers. You can build a new house, but you can't build a new prime location. It's nature that these new homes are going to sell for less than established homes on more desirous plots.

Best time in the last 100 years to buy an home today.

thats a big ask though, the FED won't be holding restrictive rates much longer as they are very pro employment.

So essentially in the next year or two it will be a better buyer’s market if the current trend follows historical trends.

You should do this on Canada!

This is telling me the new homes are being built in low value locations or with poor planning strategies. Stack houses are no longer sufficient.

It seems like this situation is eventually going to normalize, it's just a question of when. Could be several years... Does anyone remember during the peak of the pandemic dealerships trying to sell new cars with huge mark-ups over MSRP? That didn't last forever.

What is Real M4?

Concerning the left chart at 2:09 Can someone ELI5 why we don't see deflation instead of just disinflation when M4 decreases? Does it have to do with velocity of money lagging behind? Or maybe the flight to real assets? Other factors like supply chain issues?

Ben Bernanke: "To the extent that home prices begin to rise, consumers will feel wealthier, they’ll feel more disposed to spend. If house prices are rising, people may be more willing to buy homes because they think that they’ll, you know, make a better return on that purchase. So house prices is one vehicle. Stock prices-many people own stocks directly or indirectly. The issue here is whether or not improving asset prices generally will make people more willing to spend."

The Fed has raised interest rates, but also raised liquidity provided to banks. This has stagnated or moved housing prices sideways for almost 2 years. Had the Fed not provided this extra liquidity to the market for the last few years, we'd be in a recession. The extra Fed liquidity is pushing housing prices sideways. The most important aspect to all prices is Fed liquidity provided to the markets. This can stagnate markets and prevent a bad recession and is the new Fed tactic to prodding the economy. Do a video on the Fed increasing short-term liquidity and how it pushes prices up.

I think the reason why existing homes are more expensive than new builds is because of location. At least in my city new builds are being built further and further away from the city.

In 2005 when I was 21 there were houses I could buy after working 1 year. Today it would take me 20-40 years to buy a house. The houses have gotten bigger, more expensive, and only people my age of 41 or older can possibly buy one. Good luck to young people. They aren’t even trying to build 1 to 2 bedroom homes of modest quality anymore.

theres actually a huge inventory of homes trying to be sold and no1 is buying them

Price per square foot is a better metric to explain the price of new homes

The issues that caused the 2008 housing crises aren’t in place today. Predatory lending practices with variable rate loans to people who couldn’t afford them is what caused the record foreclosures and the subsequent collapse in MBS’ values which of course threatened the solvency of the entire US banking system. Even though housing prices are sky lending practices are much tighter and the likelihood of a 2008 style housing crash is very low. Not impossible but the conditions are quite different.

One thing to keep in mind when comparing new vs existing homes is land and location. After Eisenhower created the federal highways sytem we had huge amounts of cheap land relatively close to most metros downtown and major employment centers. Fast forward almost 70 years are we are running out of land. Miami for example has no new single family home construction because there simply isn't land to do so. NY, DC, etc are the same. However the south is less built out and still has room. Look the cities with more new construction, Dallas, Phoenix, LV, Denver, etc. The south will get a bit of relief from this new construction and as single family homes become more unaffordable nationwide, the get between these areas wiil widen pushing more people to move.

New homes are smaller, on smaller lots, of lower quality, and in less desirable areas than the existing home stock. The mismatch in product-market fit drives higher days supply. It’s like saying the average existing home is 2400 sq feet with a steel frame in Newport Beach CA. And the average new build is 1700 sq ft with a straw frame in Detroit.

New homes are also in less desirable sprawl while existing homes tend to be closer to amenities and higher political representation in city centers.

In China, some properties drop 50% in price and yet people not buying due to fact it is still too expensive

Existing home prices trend higher because the only way you're getting someone to abandon a 3% mortgage is by overpaying.

Great

I have a good job and I can afford a home. this is ridiculous, people keep telling me houses are going to keep rising. I’m getting desperate now

This economic cycle it is taking a longer time for home prices to fall. It will happen as unemployment has started to rise and prices will fall by at least by 25% with significant number of foreclosures.

If there's a glut of new homes and declining prices, how come homebuilders seem to be killing at the moment? Doesn't seem logical to me.

Old houses are still close to the central business district and new houses are further and further out. So difference between exurb economics & inner suburb economics probably explains the gap. And your comment about some regions having no new housing at all probably makes the national average look weird.