In many areas of California, particularly the more built-out coastal counties, an increasing number of projects are being built in older infill neighborhoods. Infill areas often have no actively selling new home projects to use as comps for new deals; however, there are typically plenty of resales that can be studied. To understand what drives new home values in comparison to resale values, we recently completed a report evaluating pricing at 36 new home projects versus local resales in 26 different cities throughout California. Here are three of our key takeaways:
1. Resale age is key. If you look at nothing else, determine how old the nearby resales are. New attached units (condos/townhomes) can be priced an average of 1.0% higher for each year of difference in age from existing homes. New detached homes can be priced 0.7% per year higher (assuming similar-size homes). Keep in mind that there are many nuances that can drive the annual adjustment higher or lower.
2. Cycle timing matters. Home builders can be much more aggressive with new home pricing when the market is hot than when the market is cold. When the market is hot, annual new home premiums based on resale home age are an average of 10% to 15% above the average for detached homes and +/-30% higher for attached homes. When the market is cold, new home premiums are 40% to 45% lower than average for detached homes and +/-40% lower for attached homes.
3. Beware your neighbor. The quality of the property next door makes a difference. Being next to high-quality uses can drive annual resale adjustment values for both attached and detached units up anywhere from 25% to 40%. Conversely, being next to poor-quality uses can depress values as much as 40% to 5 0% below average. Tearing down an eyesore can boost values for everyone in the area.
Many other characteristics also impact achievable prices at new home projects relative to local resales. Our 68-page research report includes analysis of walkability, parking, amenities, density, design innovation, upgrades, market depth, project size, price attainability, land plan, and other factors.
