There is a dirty little secret about new homes that some people are finally beginning to figure out in this plunging housing market. First, it is important to understand that, at current prices, a new home is selling at more than 48% more than the same used home. In some cases, new homes are selling for twice their used home equivalent or 100% more. This difference is causing more and more people to buy used homes instead of new homes so that the new home industry has dropped to the lowest level since records began being kept in 1963. Of course, this will eventually drive the price of new homes down so why buy now?
But let's now talk about the dirty little secret which can devastate your dreams of buying a home, especially if you buy a new home. It is bad enough knowing that, if you buy a used home right now and the prices for used homes continue to drop enough so that your equity from your down payment disappears and you home goes under water, you will lose everything you put into that home, it will be repossessed, and you will suddenly find your much poorer family living in an apartment again while some one else moves into your constantly depreciating home. But it is even worse when you pay 48% or more extra for that new home only to realize that as soon as you purchase that home and move into it, IT BECOMES A USED HOME and its value is suddenly determined by the used home market and not the new home market causing its value to suddenly drop by 48% or more! Oops!
Didn't think about that one, did you? Most people are not thinking about it and are losing their homes because of it.
Let's look at the math because the math doesn't lie. If you are buying a new home and the used home equivalent is $150,000 with your new home being valued at $222,000 or 48% more and you make a down payment of $50,000 on that new home, as soon as you purchase the new home it becomes a used home and its value drops $72,000 to $150,000 and goes underwater by $22,000 with you losing the full $50,000 down payment and your home unless you can suddenly cough up another $23,000 to get back above water for a home which is not worth what you are paying for it and the price is still dropping. Oops! Bad deal.
Gee, I wonder how many new home buyers are losing their homes because they didn't think about the fact that a new home becomes a used home just as soon as the contract is approved and you don't even have to move into it yet. Be careful, it is easy to get hurt really bad in this economy, especially with the big boys not warning you about such things. After all, why would they? They get your down payment, about a year's worth of payments that only cover the interest and not the principle, and get your home back to sell again. Think about it.
Have you noticed that one of the sales gimmicks used by realtors to sell new homes is that they point out that the price of new homes has been increasing keeping you thinking that your home is new and will, therefore, increase in value to keep you from realizing that, as soon as you buy the home, it will become a used home and its value will not be determined by the new home market but by the used home market. Kind of deceptive, huh?