Housing Starts Were Up in May: What This Means for Buyers

New construction projects increased in May. That could give buyers more options.

Prospective home buyers in today's real estate market are struggling for one big reason -- there aren't enough properties available to purchase. A major shortage of homes is causing property values to skyrocket on a national level, and buyers are increasingly finding themselves stuck in bidding wars and priced out of neighborhoods that would normally be within their financial reach.

But some good news emerged on the construction front recently. In May, housing starts rose 3.6% compared to April's numbers.

Housing starts refer to the number of residential homes whose construction begins to some degree. A rising number indicates that more homes are being built, and once completed, the housing market should have more inventory for buyers to choose from.

But is buying a newly built home a good idea?

The pros and cons of new construction

Adding newly built homes to the mix can benefit buyers even if they don't purchase new construction. That's because the more property listings there are on a whole, the more options buyers have and the more demand can start to settle. Once demand calms down a bit, home prices can follow suit.

Meanwhile, for those interested in a newly built home, an uptick in housing starts is a good thing. But is new construction right for you?

One thing you should know is that due to the rising cost of lumber and other common building materials, a new construction home will cost more this year than you'd normally pay. That means you'll need to gear up for a higher down payment, and also, a bigger mortgage to finance that home. The good news is that mortgage rates are very competitive these days, which can offset the cost of having to borrow more.

On the other hand, if you buy new construction, what you spend in the form of a higher purchase price for your home, you might save in less maintenance and fewer repairs in the near term. It's common practice for a new construction home to come with a builder's warranty, which guarantees coverage for all workmanship issues for at least a year.

Plus, when you buy new construction, you get brand-new appliances, from your washing machine to your air conditioning system to your water heater. Those items generally come with their own warranties, so you're protected for several years against repairs or replacements.

Will housing starts continue to pick up?

Supply chain issues have made it difficult to get a hold of common building materials needed to construct homes. Things do seem to be looking up in that regard, though, and if supply continues to increase, so too could new construction projects.

One challenge that may arise in the very near term is a shortage of construction workers. Many industries are experiencing labor shortages right now, and home building is no exception. Things could improve in that regard, however, once boosted unemployment benefits are cut off in early September and more people seek to get back into the labor force. As such, there's reason to believe that housing starts could continue to pick up during the second half of the year.