Demand for New Construction Homes Plummets as Prices Soar

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KEY POINTS

  • New construction sales were down 14% in November compared to a year prior.
  • This came at a time when new construction home prices rose 19% from the previous year.

Despite the benefits of new construction, in November, buyers weren't biting.

There's been a glaring lack of housing inventory in the real estate market this year. That's forced some buyers to rethink their plans -- and stretch their budgets. For some, that's meant paying a premium for new construction, as opposed to buying an existing home that's already been lived in.

But the appeal of new construction may be waning due to an extreme uptick in cost. In November, the median price for a newly built home increased 19% from the year prior. Not shockingly, new construction homes sales were down 14% in November on a year-over-year basis.

Should you avoid new construction?

There are clear benefits to buying a newly built home. For one thing, you'll get to enjoy a pristine living space that's never been touched or tampered with.

In some cases, you might also get the opportunity to customize your new construction home to your specifications. Want a high-end kitchen with an extra oven? Chances are, your builder can make that happen (at an added cost, of course). Buying a home with the look and feel of your choice can be far less burdensome than buying an existing home and having to deal with extensive renovations after moving in.

But if there's a downside to buying new construction, it's the cost involved. Purchasing new construction will often mean having to take on a higher mortgage payment than what you'd be looking at for a comparably sized and updated home in the same neighborhood.

If you choose to make upgrades to your new construction home during the building process, you might pay a lot more than what a contractor would charge you. The reason? You'll have to use the builder in charge of your home, and you won't get the option to shop around for a better quote.

Plus, new construction homes tend to come with higher property taxes than homes that have been lived in. So in addition to a higher mortgage, you could be looking at higher ongoing costs in that regard.

Finally, new construction builds can be subject to delays. This especially holds true in today's market, with the numerous supply chain bottlenecks that have been plaguing the construction industry since last year. If you enter into an agreement to buy new construction and your home isn't completed on time, you may still have to vacate your current home -- and deal with the hassle of securing temporary housing while you wait for your home to be finished.

Will the cost of new construction come down?

As supply chain issues ease up, the cost to purchase new construction should come down. And, if housing inventory picks up on a whole, then demand for new construction should wane, driving prices downward as well.

But that may not happen for quite some time. If you're thinking of buying new construction, you'll need to have a fair amount of room in your budget -- and a fair amount of patience for the many holdups you might experience along the way.

Our Research Expert

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