Want a New Construction Home? It May Be Harder to Find in 2023
There are plenty of good reasons to want a newly built home.
Because the demand for these homes has declined, builders might pull back in the new year.
Building permits and housing starts have dropped dramatically, indicating less availability for new construction homes in 2023.
Don't count on being able to buy a brand-new place to call home.
Owning a new construction home has its perks. Though you might take on a higher mortgage with new construction compared to an existing home, you also reap the benefit of getting to live in a home that's never been occupied before.
Plus, when you buy new construction, you sometimes get the option to customize aspects of your build. So let's say there's a type of flooring you really want. Your builder might allow you to upgrade to it during the construction process. Similarly, you may get the option to choose your own wall colors, countertops, and cabinets. The result? A home that's perfectly suited to your taste.
But while new construction homes make up a pretty decent chunk of the real estate market right now, that could change in the new year. And that's something home buyers should be aware of.
New construction could get harder to find
Many home buyers clamored for new construction in 2021 as mortgage rates held steady at affordable levels and the inventory of existing homes failed to pick up. But now, higher mortgage rates are driving a lot of buyers out of the market. That, combined with higher building costs, could cause new construction to grind to a halt.
In September, housing starts (which measure the start of new builds) fell almost 19% compared to one year prior, as per the U.S. Census. And building permits, which are an indicator of upcoming construction, dropped 17%. What that tells us is that new construction is likely to slow down in the coming year, making it a less viable option for buyers who are interested in it.
Will more previously owned homes hit the market?
A drop in new construction isn't necessarily a terrible thing if it happens at a time when the inventory of existing homes increases. But if that doesn't happen, home buyers might really struggle in the new year.
As it is, home prices are elevated on a national level because there still isn't close to enough real estate inventory to meet buyer demand. If new construction slows down in 2023, it could push home prices upward even more, forcing buyers to really stretch their budgets to purchase a place of their own.
Meanwhile, if you're interested in owning a newly built home and see an opportunity to buy one, you may want to jump on it. Mortgage rates are unlikely to plummet in the next few months, so there's no sense in holding out for rates that are more attractive.
If you buy a new construction home now, you might end up spending a lot. But you can always refinance your mortgage down the line if rates begin to fall.
Now you will need to make sure your monthly housing costs, including your mortgage payment, property taxes, and homeowners insurance, don't exceed 30% of your take-home pay. But if you can swing a new construction purchase while sticking to that limit, you may find that you're more than happy with the decision to buy a home that's never been lived in before.
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