What buyers need to consider with a newly built house

On May 20, 2024

Alistair Berg | Digitalvision | Getty Images

New builds may offer more flexible pricing

In a housing market that is plagued with low supply, buyers have been turning their attention to new construction because “there’s more opportunity,” Nicole Bachaud, senior economist at Zillow Group, recently told CNBC.

Unlike existing-home sellers, builders are typically more flexible when it comes to pricing. Builders can also offer buyers incentives like rate buy-downs, price cuts and covering closing costs, experts say.

A little less than two-thirds of builders are using some kind of incentive to promote sales, Dietz said. Those can include amenity upgrades, mortgage rate buy-downs and some limited price cuts.

Only about a quarter of builders are actually using a price reduction, said Dietz. And those price cuts average out to be around 5% to 6%.

The price gap between existing and new homes

The median sales price for new houses sold in the U.S. during March was $430,700, according to the latest data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

While new builds are still sold for slightly more than existing homes, the price gap has significantly narrowed.

“Prices are much closer to parity than during any point in the last three decades,” Matthew Walsh, assistant director and economist at Moody’s Analytics, previously told CNBC.

Over the last six months, the median price for a new home is only about 4% higher than the median price of an existing house. That level is significantly lower than before the pandemic when the median price of a new home was more than 40% higher than an existing house, Walsh said.

The low supply of existing homes has caused prices to tremendously grow while prices for new builds tend to move based upon interest rates, housing demand, the amount of competition for existing homes, and the cost of construction, Dietz explained.

What to keep in mind when buying a newly built home

If you decide to look into new construction, keep in mind that only about 10% of new homes available for sale are completed and can be considered move-in ready, Dietz said.

The bulk of new homes available can range from empty lots that are ready to be built on, to homes in different stages of construction, he said.

Today’s buyer needs “to be strategic, patient and flexible,” said Dietz, from considering different kinds of housing and locations, to making design decisions.

Here are four things to pay attention to:

1. Consider a smaller house: Since 2021, homebuilders have been building a “slightly smaller product” to deal with the lack of affordability, said Dietz. Reducing the square footage of your home can help reduce construction costs as well as utility and maintenance costs down the line. Townhouses made up almost 18% of single-family housing starts for the first quarter of the year, according to NAHB data.

The size of new single-family homes continues to shrink: In the fourth quarter of 2023, the median single-family square…