The price distribution of new home sales has changed markedly over the last ten years. Indeed, new home prices have increased, due to market shifts and higher regulatory costs.
The following analysis uses data from the Quarterly Sales by Price and Financing reported by the U.S. Census Bureau. As shown in the following graph, the number of new homes sold for less than $250,000 had been declining prior to the recession. Sales in this class have not reached back to the levels set in 2006, especially for homes with prices below $149,000. New homes sold for $150,000 to $199,999 (green) and $200,000 to $249,000 (purple) declined to a cycle low during the recession, and since then have been on a slow, recovering pace.
A second group illustrates new homes sold above $250,000, which are the main growth drivers in the market. Over the last ten years, all of the five categories reported below experienced dramatic declines during the recession and then increased gradually since 2011. Among the five categories, new homes priced between $300,000 and $399,000 had the highest volume before the Great Recession and have experienced the fastest recovery since that time.
Clearly, after the recession new homes sold at lower prices have not grown as fast as other parts of the market. As the graph below illustrates, there has been a notable shift from new homes sold in the below $200,000 class to homes priced between $200,000 and $750,000.
This market shift is due to both demand-side factors (weakness among first-time buyers), as well as supply-side cost constraints, including rising regulatory burdens.