Yesterday in response to the story about the vanishing new construction price premium, reader “nwerner” commented:
You should also do your analysis on a per SF basis if you haven’t already. The square footage of new construction has dropped considerably, in the range of 20 to 25 percent. Your second comment, re: lower lot prices and construction costs, is accurate but it doesn’t tell the whole story.
Great idea. Here’s a chart of the median square footage of both re-sales and new construction over the same time period as yesterday’s chart:
There’s definitely some shrinkage going on in the size of new construction homes sold, but a decline from 2,650 to 2,500 doesn’t really go very far toward explaining the dramatic price drop-off we saw yesterday.
It is interesting to note that over the last year, new construction homes sold have been an average of 550 square feet larger than re-sales, which certainly would explain why you would expect them to be more expensive.
Here’s a plot of the price per square foot of re-sales and new construction:
Whoa. Now that is some serious drop-off. In April 2009, new construction homes sold for a median price of $199 per square foot. As of July, that price is down to $155 per square foot—a 22% decline in 15 months.
While the new homes being sold today may be getting slightly smaller, they’re definitely getting cheaper a lot faster than re-sales.