One Surprising Factor Driving Up the Cost of Brand-New Homes

by Christy Bieber | Updated July 19, 2021 - First published on March 13, 2021

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A man and woman standing in a partially constructed new home and looking at plans on a work table.

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Find out why you're likely to see higher prices if you're building a new home.

When you're building a new home, you can expect to pay a premium. One benefit of this is you'll get to move into a brand-new place that typically comes with a home warranty. But you'll pay extra for that, as well as for the opportunity to customize your property to your specific needs.

When you work with a builder to construct a home, you'll get a price quote up front that tells you how much you can expect to pay. The cost in 2021 may come as a shock. That's because the price of new homes has been driven up this year. And there's one simple reason for that.

Here's why new construction home prices have gone up

According to the National Association of Home Builders (NAHB), prices on new homes have skyrocketed because of a dramatic increase in the cost of one particular commodity: Lumber.

Although there are some exceptions, most homes across the U.S. are built out of softwood. Softwood is used in structural framing, such as trusses and rafters. It's also used for flooring, interior walls and ceilings, doors, cabinets, windows, roofs, sidings, soffits, garages, porches, railings, decks, fences, and much more. In other words, a good percentage of your home is made of softwood.

As a result, when softwood prices increase, so do home prices. And softwood prices are way up right now. In fact, there's been a 180% increase in the price of framing lumber since last April. The price per thousand board feet has jumped $350 to $975.

The NAHB assessed how much this price could impact the typical new home, and the results were astounding: An average, brand-new, single-family home would likely cost almost $25,000 more than it did last April.

Unfortunately, there's not much you can do about this if you're hoping to build a home. After all, you can't exactly substitute another material for the lumber that's needed to frame your house or construct its main components.

You can opt to purchase an older single-family home rather than build or buy new. But this isn't always an option, especially if you have specific needs for your space. Of course, high demand for homes and low supply have also driven up the prices of existing homes.

If you plan to move ahead with building a brand-new home, you can look for other ways to cut costs during the building process, such as choosing less expensive finishes that could be upgraded later. You should also make sure to shop around carefully for a home loan. Even slight differences in mortgage interest rates can have a major impact on the total amount you'll pay for your home over time.

Don't pay more than you can afford

The important thing is to make sure you can afford the home you're buying, whether you purchase an existing home or go for a newly built one at a higher price. Check that your mortgage payments will fit comfortably into your budget. That way, you can reduce the chances that you'll end up regretting your purchase -- even if you do have to pay a little more to get the perfect place.

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