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Buyers turn their backs on new homes

A new residential construction project continues in Canonsburg, Pa., Feb 20. For buyers, the decision between a new home and an existing one is getting easier. A wave of foreclosures has sent prices of previously occupied homes sinking. (AP photo by Gene J. Puskar)

By Derek Kravitz
AP Business Writer

Washington — A new home, the dream of many would-be buyers, makes less and less financial sense in many places.

A wave of foreclosures has driven down the cost of previously occupied homes and made them even more of a comparative bargain. By contrast, new homes have become more expensive.

The median price of a new home in the United States is now 48 percent higher than that of a home being resold, more than three times the gap in a healthy housing market.

Such a disparity can be a drag on the economy. New homes represent a small fraction of sales, but they cause economic ripples, bringing business to construction and other industries.

“A lot of people are saying, ‘If I can get a great deal on a home already on the market, why go through the headaches of getting a new home?'” said Mark Vitner, a senior economist with Wells Fargo.

The median price of a new home — the price at which half the homes sell for more and half sell for less — has risen almost 6 percent in the past year to $230,600, even though last year was the worst for sales in nearly a half-century.

By contrast, prices of previously occupied homes have dropped more than 5 percent. In February, the median price for a resale was $156,100, according to the National Association of Realtors.

Fewer new homes sold means fewer jobs added to an economy struggling with 8.9 percent unemployment. About 2.2 million overall construction jobs have disappeared since the housing boom went bust. That’s nearly a third of the people the industry employed in January 2007.

Workers in residential construction have fared even worse than other construction employees. Homebuilders cut nearly 1.3 million jobs in that time.

Home prices and sales still vary sharply among metro areas. Cities with more foreclosures tend to have more resale homes that have languished on the market and are priced at a bargain. That makes new homes in those areas comparatively expensive.

In Atlanta, for instance, where foreclosures accounted for one in every 23 homes sold last year, the median price of a previously occupied single-family home was $109,900, about 12 percent lower than a year ago, according to the Georgia data firm Smart Numbers. The median price of a new home was more than twice that.

“That’s as much of a difference as we’ve ever seen,” said Steve Palm, president of Smart Numbers. “New homes can’t compete, and that means jobs.”

An average of three jobs and $90,000 in taxes are created for each home built, according to the National Association of Home Builders.

In some areas, older homes were more expensive before the housing market bust. That was especially true in urban neighborhoods with little or no room to build. But now, buyers get their pick even in some of the trendiest places.

Homebuilders have taken notice. Residential construction has all but come to a halt. Builders broke ground last month on the fewest homes in nearly two years. And building permits, a gauge of future construction, sank to their lowest level in more than 50 years.

Many builders are waiting for new-home sales to pick up and for the glut of foreclosures and other distressed properties to be reduced. But with 3 million foreclosures forecast this year nationwide, a turnaround isn’t expected for at least three years.

Don Eyler, who has owned E and R Construction in Terre Haute, Ind., for three decades, blames the banks. He said people are still interested in custom-built homes but can’t finance the purchase. Tighter credit has made it harder to get larger loans.

Eyler typically built eight homes a year before the housing boom and bust. Now, he’s averaging just about five. And he’s making less profit on each.

“We hope we can stay in business until it gets better, but the turning point is this year,” Eyler said. “If it doesn’t change, we’ll have to do something different.”

AP business writers Christopher S. Rugaber in Washington and Alex Veiga in Los Angeles contributed to this report.

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