For several, post-World War II generations of families, owning a home has been an important part of the “American Dream.” Unfortunately, a “perfect storm” of factors has caused the American Dream to feel more like a nightmare for homebuyers. These include historically low mortgage rates; the largest population cohort in history - those born after 1980 - starting families; a pandemic that fundamentally changed how families worked and educated their children; and low yields in traditional investments that propelled investment in residential real estate. Together these conditions caused a demand for homes that has seldom been seen.
While the current demand is “rocking,” the supply is “reeling.” This has caused potential homeowners to seriously weigh the advantages and disadvantages of building a new home versus buying an existing house.
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According to several sources, including this one, homebuilding trends have changed, and this has affected both the “cost vs. value” of newly constructed homes and existing, older homes. “It used to be that new homes cost more than older homes, but that's not always the case.
“Location plays a big role, as real estate in urban areas typically costs more than it does in the suburbs. Inner-city single-family homes in desirable neighborhoods are likely to have been built before homes in the suburbs, and on average cost more than entry-level new homes being developed in new subdivisions outside the city.
“As the cost of land has increased over time, the size of new home lots has shrunk, yet houses are getting larger, leading to smaller yards and closer neighbors. Townhomes and condos are on the rise, as standalone single-family residences decline.
“Houses are also being built differently now than they were decades ago. Building codes may be stricter, but construction practices have been streamlined. Today's construction is often cheaper because, for instance, it's less expensive to use 2x4 pine framing or engineered wood over 2x6 redwood, and to use drywall instead of plaster.”
Home construction expert Brent Snyder of Acme Brick has been involved in the residential construction industry for many years and has never seen as many challenges on both sides of this “build new or buy existing” conundrum.
“It’s crazy,” he said. “I understand why buyers are confused and frustrated. If it’s any consolation, the builders and real estate agents are also scratching their heads!
“While I believe that the advantages of a newly constructed home far out-weigh those of a ‘used’ home,” he said, “the delay in building materials, for example, the lead time for new windows is 24 weeks, has caused many homebuilders to rethink their approach to a final agreement on the price of a home.
“I have heard reports that some builders are opting to forgo a formal contact at the beginning of the project - taking a deposit from a client instead - and then offering a final price and contract AFTER the Sheetrock phase is completed. Prices for phases built after the Sheetrock is installed are just that volatile!
“My friends who are real estate brokers have also shared another challenge with buying an existing home. ‘Bidding wars’ have become standard operating procedure for any existing home, regardless of the condition of the property. First-time buyers, who are not savvy about this process, seldom get the first home they choose to buy. This strongly suggests that building a new home has more certainty than buying an existing one.”
Pros and Cons of Building vs. Buying
When a family is considering whether to build a new home or buy an existing property, it’s a good idea to take an “old school” approach in making the decision. Time to make a list. According to this website, building or buying have their advantages and disadvantages.
Advantages of buying an existing home
- Old-World Construction: Older homes have stood for decades, some for centuries, and weathered many storms. Some were built by hand by genuine craftsmen with meticulous attention to detail.
- Larger Yards: When land was cheaper, builders built on larger lots, leaving room to accommodate garages and yards.
- Established Neighborhoods: Zoning changes are unlikely to occur in older areas, so older homes come with more predictable surroundings and mature trees and landscaping. They are also likely closer to city centers.
Drawbacks of an older home
- More Maintenance: Aging construction means there's always something to repair.
- Plumbing Failures: Older homes used galvanized pipes, which unlike modern copper pipes, are rust-prone, and over time will break down.
- Electrical Safety: Many older homes weren't built to comply with modern safety standards.
- Smaller Spaces: Closets, cabinets, garages, and other storage spaces tend to be on the smaller side. Plus, there is typically less square footage.
- Appliance Updates: Apart from HVAC systems, functional or trendy updates can involve pricey kitchen and bath remodeling.
- More Expensive: There is a premium for an urban location, and the “charm that comes with classic and vintage homes.”
- Inadequate insulation: This will result in (often) much higher utility expenses
Advantages of building a new home
- Less Maintenance: This is especially true if the home is constructed of brick. New construction is meant to outlast warranties, so homeowners shouldn't expect to install a new roof, replace the water heater, or repair fixtures for 10 to 20 years.
- Modern Conveniences: Built-in dishwashers, refrigerators, microwaves, and wine coolers are now standard in new construction. Newer homes frequently feature primary suite baths, workout and media rooms, and networked wiring systems.
- Energy Efficiency: New appliances use less energy. Plus, walls, ceilings, and floors of newer homes are insulated. Again, brick construction helps to enhance this efficiency.
- Built to Code: Municipal permitting systems are well established, and building codes are updated all the time.
- More Affordable: If the new home is not a custom home, it's likely to cost much less per square foot than an older home in the same location.
- Greater Average Square Footage: The cost per square foot is lower than that of an existing home.
Drawbacks of building a new home
- Construction Material and Appliance Delay: Whether it is wood, brick or synthetic materials, demand is still higher than supply. Plus, appliance manufacturing is still trying to catch up from COVID delays. This scarcity impacts building schedules.
- Lot Costs are Higher: Homebuilders are grappling with erratic prices for land and this is causing them to “hedge their bets” with higher lot pricing for buyers.
- Cookie-Cutter Floor Plans: It's a matter of preference, but some feel that mass-construction homes are identical to one another and lack individuality.
- Immature Vegetation: It can take years for trees to grow, so newer homes often utilize shrubs, cacti, or other quick-fix landscapes.
- Unpredictable House Settling: All houses settle into their foundations after a while, but older houses have already done so. Settling can cause cracks in foundations, walls, and door frames.
- Longer Commutes and Distance from City Center: Newer houses are often built in the suburbs, and this means a longer commute if one’s job is in the city center.
The Best Decision
For his character Falstaff, William Shakespeare wrote that “discretion is the better part of valor.” While this iconic verse was written in 1596, the Bard’s wisdom is even more applicable to today’s homebuyers, who are “valiantly” chasing an opportunity to buy a home. Discretion, or waiting for some of the economic factors to depressurize, might be the best decision for those seeking a new address.
If it is possible, now may be the right time to sit tight in a current residence. This might be a great time to consider planning a few home improvement projects and wait for the housing market to unwind a little. If you are planning on waiting to buy a new home, here are some indoor and outdoor remodeling projects to consider. If history is any indicator - and it is always an indicator - there will be greater inventory of both new and existing homes in the coming year, likely making the American Dream less expensive and much less nerve-wracking.
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