New construction purchases are down. Should you buy a newly-built home right now?
The demand for homes has soared this year as buyers have rushed to take advantage of low mortgage rates. But in September, mortgage applications to purchase newly built homes dropped 16.2% from September of 2020, according to the Mortgage Bankers Association.
A big part of that could stem from the fact that new construction has gotten quite expensive. In fact, this year, buyers of newly built homes will pay an average of $36,000 more.
Of course, purchasing a newly built home has its benefits, but is buying one worth it today?
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The upside of buying a new construction home
Buying new construction could mean getting to make your own design choices. Now the extent to which you'll do that depends on when you buy in the course of the construction process. You may be able to buy a home where you design the entire layout. Or, you may only get to make choices on things like flooring and wall colors. Either way, that's not an option you get when you purchase an existing home.
Even if your design choices are minimal, when you buy new construction, you get a home in pristine condition that no one has lived in. You don't have to worry about stained carpets, scratched floors, or loose cabinet knobs.
Plus, buying new construction could mean fewer repairs for your first few years in your home. It's common for new appliances to come with warranties, and builders also generally offer at least a one-year warranty that protects you from any repair costs due to workmanship issues. That could make adjusting to your new home easier from a financial standpoint.
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The downside of buying new construction
Generally, a newly built home will cost considerably more than a comparable existing home. This especially holds true in today's housing market. Supply chain issues have caused the cost of common building materials to skyrocket, and builders are passing those increases onto their buyers. While new construction might save you some money on near-term repairs, your higher purchase price might negate those savings and then some.
Also, when you buy new construction, you may be subject to closing delays. This may not be an issue for a home that's mostly completed by the time you sign a purchase contract, but for a home that allows for more customization, the delays could be extensive. This especially applies in today's market, when common supplies are harder to get.
If you have a flexible living situation, those delays may not be so bothersome. But if you're trying to sell a home and buy one simultaneously, purchasing new construction could be a challenge. If your closing date for the home you're selling arrives before your new home is ready for occupancy, you could be forced to find temporary housing, which can be annoying and costly.
Is new construction right for you?
It's easy to see why new construction sales declined recently. If you've been considering new construction, take some time to weigh the pros and cons. Also, check out existing homes for sale in your neighborhood. You may be pleasantly surprised to find some properties that look new, but are more affordable than a newly built home.
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