The housing market has seen a significant increase in the availability of newly constructed homes, with about 33.4% of single-family homes for sale in the first quarter being new builds. This surge in new construction represents almost double the pre-pandemic levels. It’s important to note that this uptick in new builds does not necessarily mean that construction has ramped up. Builders are still constructing around 1 million single-family homes each year. The main factor contributing to the rise in new construction is the shrinking inventory of resale homes.
Buyers are increasingly turning to new construction due to the opportunities it presents in a market with low supply. Builders are more flexible when it comes to pricing, offering incentives like rate buy-downs, price cuts, and covering closing costs to attract buyers. Nearly two-thirds of builders are using incentives, with amenity upgrades, mortgage rate buy-downs, and limited price cuts being common tactics. The median sales price for new houses in the U.S. was $430,700 in March, with prices for new builds coming closer to parity with existing homes.
When looking into purchasing a newly constructed home, there are several factors to consider. Only about 10% of new homes are move-in ready, while the majority are still in different stages of construction. Buyers need to be strategic, patient, and flexible when making decisions. Here are four things to pay attention to:
1. Consider a smaller house: Builders have started to offer slightly smaller homes since 2021 to address affordability concerns. Reducing the square footage of a home can cut construction, utility, and maintenance costs. Townhouses are becoming more prevalent, with the median square footage of single-family homes decreasing.
2. Be open about geographic location: Consider looking for new construction in rural areas where costs may be lower due to reduced regulatory costs and greater land availability.
3. Keep construction costs down: Factors like lumber and labor costs impact the overall cost of a new home. Buyers can control costs by focusing on essential structural elements and opting for basic or lower-cost finishes.
4. Be mindful of future costs: Budget for potential increases in costs after the first year of owning a new build. Property taxes on newly constructed homes tend to rise significantly post-purchase. Research reassessment practices in the county to prepare for possible changes.
Long-Term Benefits of New Construction
While prices for new builds are still slightly higher than existing homes, the price gap has narrowed significantly. New homes are more resilient and energy-efficient, leading to lower operating costs over the long run. Buyers can enjoy savings from improved efficiency and durability in newly constructed homes.
The rise in new construction provides buyers with more opportunities in a market facing low supply. It’s essential for buyers to consider various factors when purchasing a newly constructed home, from size and location to construction costs and long-term expenses. By carefully analyzing these considerations, buyers can make informed decisions that align with their needs and financial goals.
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