Residential real estate has historically been a great investment. In this sector, investors have the choice of a new home or an existing home. When it comes to investing, is there a difference between the choices? Which will perform better over time?
The national average for median new home prices are just off a historic high in price. May 2014 was the high in median price and since then prices have been steadily falling. That statistic comes courtesy of the Federal Reserve Bank of Saint Louis.
As an analyst, the Elliott Wave (EW) principle is an invaluable tool in trying to answer these questions. Proper application of Elliott Wave gives the analyst the ability to know when a market top is near. It also gives the analyst the ability to determine the likely stopping point of the market retreat.
The new home median price has been steadily rising since the statistic has been kept by the FED. The new home median price took a dip, with the rest of the housing market, as you can see from the FED graphs.
Unlike existing home sales, new home sales have made a new all-time high. In Elliott Wave terms, the price pattern of both these graphs are giving the same message. The rise in prices is either over or very nearly over. This is a very dangerous time to be entering the real estate market in any capacity. If you have a plan to invest in or be part of the real estate market, and it does not factor in a huge downward movement in real estate prices, then don’t. A forty percent drop in prices from the current levels is quite likely.
The current descent in existing home median sales prices will be the resumption of a trend that began in 2006. New home median sales prices have only just begun their bear market wave. The above data was reevaluated by combining the data of each into a single price chart. Basically, existing home median price divided by new home median price. The resulting Elliott Wave pattern indicated that existing home median sales price would likely fair better than new home median sales price. Keep in mind, a better performance will simply mean a smaller percentage drop from current levels. Existing homes will likely be best of breed for five years or more.