As we tour housing markets across the Midwest, the topic at the forefront of discussion is the price gap between new homes and existing homes. This gap has widened in every major market across the Midwest since the beginning of the Great Recession and is currently 70% on average. While this doesn’t mean that similarly sized new homes are priced 70% above existing homes in the same neighborhoods, it does suggest new homes are increasingly targeted toward second and third move-up home buyers, meanwhile existing homes are satisfying demand from entry-level and first-move up home buyers.
This trend is particularly noticeable in Chicago and the Twin Cities. Prior to the recession, new homes carried a 10% to 20% premium over existing homes region-wide in these two markets. This gap has now grown to 70% in Chicago and 76% in the Twin Cities. This price gap has made it much more difficult for builders and developers to compete against a much more affordable resale market.
