If you're in the market for a home, there's a good chance you'll come across newly built properties. About 33.4% of single-family homes available for sale in the first quarter of this year were newly built, nearly double the pre-pandemic levels, according to a report by Redfin.
"It doesn't mean necessarily that new construction has ramped up," said Robert Dietz, chief economist of the National Association of Home Builders. Homebuilders are still constructing about 1 million single-family homes a year, he said. "What's happened is that the level of resale inventory has shrunk."
New Builds May Offer More Flexible Pricing
In a housing market plagued with low supply, buyers are increasingly turning to new construction because it offers more opportunities. Nicole Bachaud, senior economist at Zillow Group, recently told CNBC that builders are typically more flexible with pricing. Builders can offer incentives like rate buy-downs, price cuts, and covering closing costs.
Dietz noted that a little less than two-thirds of builders use some kind of incentive to promote sales, such as amenity upgrades, mortgage rate buy-downs, and limited price cuts. About a quarter of builders use price reductions, averaging around 5% to 6%.
The Price Gap Between Existing and New Homes
The median sales price for new houses sold in the U.S. in March was $430,700, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. While new builds still sell for slightly more than existing homes, the price gap has significantly narrowed.
"Prices are much closer to parity than during any point in the last three decades," said Matthew Walsh, assistant director and economist at Moody's Analytics.
Over the last six months, the median price for a new home has been only about 4% higher than the median price of an existing house. Before the pandemic, the median price of a new home was more than 40% higher than an existing house.
The low supply of existing homes has caused prices to rise dramatically, while prices for new builds tend to fluctuate based on interest rates, housing demand, competition for existing homes, and construction costs, Dietz explained.
What to Keep in Mind When Buying a Newly Built Home
If you decide to explore new construction, keep in mind that only about 10% of new homes available for sale are completed and move-in ready, according to Dietz. Most new homes range from empty lots ready to be built on to various stages of construction.
Today's buyer needs "to be strategic, patient, and flexible," said Dietz, suggesting that buyers consider different types of housing and locations and make thoughtful design decisions. Here are four things to pay attention to:
Consider a Smaller House: Since 2021, homebuilders have been constructing slightly smaller homes to address affordability issues. Reducing square footage can help lower construction, utility, and maintenance costs. Townhouses made up almost 18% of single-family housing starts in the first quarter of the year.
Be Open About Geographic Location: New construction can be more affordable in rural areas due to lower regulatory costs and greater land availability.
Keep Construction Costs Down: Major factors like lumber and labor costs impact the cost of a new house. Homeowners can control finishes added to the house. To save on costs, focus on completing structural elements and opt for basic or lower-cost features during construction.
Be Mindful of Future Costs: Allow room in your budget for costs that may change significantly after the first year, such as property taxes. Research how often your county reassesses property taxes and what the formula is based on.
Despite potential future costs, new homes often offer long-term savings. "When you're buying a newly built home, you're typically buying a home that's more resilient and more energy efficient," said Dietz, which can mean lower operating costs over time.
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