Lumber Costs Are Down, but New Homes Are Still Expensive. Here's Why

Buyers beware -- a newly built home will still cost you more money than usual.

Having a home built from the ground up is hardly an inexpensive prospect. In fact, generally speaking, it costs a lot more to purchase new construction than it does to buy an existing home (assuming both properties are comparable in size and features, and that they're located in the same general area).

But this year, the cost of new construction has soared: The price to have a new home built has risen by $36,000, on average. And the reason has largely been attributed to the rising cost of lumber.

In June, however, the price of lumber fell more than 40%, representing its biggest monthly drop ever. But even with that decline, lumber is still more expensive now than it was a year ago. And it's still in short supply, along with other materials needed to build a new home.

The result? Buyers today are looking at steep prices to purchase new construction. And they shouldn't expect those costs to come down anytime soon.

Sourcing materials is still a challenge

The coronavirus pandemic disrupted a number of key supply chains that have impacted the construction industry in a big way. While lumber may be less expensive to buy today than it was a few months ago, it's also difficult to come by. The same applies to other common building materials, as well as to household appliances.

All of these shortages are causing widespread construction delays. And those, in turn, are costing buyers money.

Not only are builders struggling to procure the materials they need to construct homes, but they're also having difficulty getting accurate cost estimates to pass along to their buyers. As such, some buyers are entering into contracts to purchase new construction homes without knowing what exactly they're going to pay.

Should you buy new construction today?

There are definite benefits to buying new construction. For one thing, you may get the option to customize your home so it really suits your needs and taste. Also, with new construction, you shouldn't have to worry about spending money on major repairs for at least a few years after moving in since these homes commonly come with builder warranties. Plus, appliances like water heaters, washing machines, and refrigerators offer their own built-in warranties, as do roofing systems.

But if you're going to buy new construction, you'll need to prepare to pay up. And you may not get a good sense of what your final purchase price will be until your home is complete. That could, in turn, make it trickier to get a mortgage and budget accordingly.

This isn't to say that new construction is a bad idea. Right now, there's a major shortage of homes on the real estate market, so building a house from scratch could be a smart move if you can't find an existing property you like. Just prepare for a series of delays -- and a higher purchase price than you may initially have anticipated.