Report: New-Build Price Premium Down from 2012 Peak

The price premium attached to newly-built homes has fallen over the past six months, ""Capital Economics"":http://www.capitaleconomics.com/ observed Wednesday.

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Using data from the ""Census Bureau"":http://www.census.gov/construction/nrs/ on new single-family house prices and reports from the ""National Association of Realtors"":http://www.realtor.org/topics/existing-home-sales on existing home prices, Capital Economics concluded that the new-build price premium-the gap between the price of a newly-built home and an existing one-has decreased from its 42 percent peak (achieved earlier this year) to 33 percent in August.

According to Capital Economics' estimates, the new-build premium has averaged about 15 percent since 1966. The premium actually rose during the housing crash even as new home prices fell, owing largely to the fact that existing home prices plummeted due to short sales and foreclosures.

However, increased demand and rapidly dwindling supply have combined to provide a kick-start to existing home prices, particularly at the lower end of the price spectrum. Although new-build prices did see a rebound of 11.2 percent from July to August-creating a 30 percent boost in the new-build premium-Capital Economics attributed the bounce to methodological problems within the Census Bureau's index (namely, the index doesn't include data on the mix of sold properties).

With existing home prices experiencing a steady increase, the firm expects the gap between prices will continue to close.

""Our expectation is that the new-build premium will continue to move lower for now,"" wrote Paul Diggle, property economist at Capital Economics. ""After all, we expect lower tier existing house prices to continue rising fairly rapidly. New-build house prices are set to rise as well, just by less than prices for existing homes.""