New home sales hit 12-month low
There have been a very limited number of existing homes available for purchase in today’s real estate market, so some buyers have turned to newly built homes as a more viable, albeit potentially expensive, alternative. But new-build sales haven’t really taken off.
New home sales – those that apply to newly built homes – fell in May, hitting a 12-month low. Specifically, this drop was measured at 5.9% from April’s figures, according to data from the US Census Bureau and the Department of Housing and Urban Development.
One interesting thing is that new home sales fell in May despite the inventory of available homes dropping from 315,000 to 330,000 nationwide. But much of the reason for the drop could come down to cost.
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It is getting harder and harder to buy a newly built house
In the first quarter of 2021, new homes accounted for 26% of total home sales. Yet many buyers today may have no choice but to miss out on new construction due to one major factor: cost.
Since last year, there has been a massive shortage of lumber and other commonly used building materials, causing a demand crisis. As such, prices are pushed up to the point where buyers today can expect to spend around $ 36,000 more for a typical new build, on average.
Can you afford a newly built house?
When buying an existing home, you can often get away with less than 20% at closing (although this translates into private mortgage insurance if you take out a conventional home loan). But often mortgage lenders require a 20% down payment on new construction, which means you’ll have to shell out more money up front. Add to that the fact that newly built homes tend to cost more than existing homes – and cost more these days – and you might find that buying one isn’t financially feasible in the short term.
That said, one of the benefits of buying a new build is that your maintenance and repair costs may be lower for at least the first few years you’re in your home. This is because newly built homes usually come with a builder’s warranty, which covers you for manufacturing defects. This warranty will last at least a year, but you may be able to find a manufacturer who will offer a longer one.
In addition, household appliances generally come with longer warranties. So if you are buying an existing home you may need to replace your water heater within a year, but if you are buying a new build you may be protected against this expense for a good five years.
Ultimately, you’ll need to calculate a few numbers to see if the new build fits your budget. Obviously, many buyers stay away from new construction because of the costs involved. But if you can buy a newly built home, you might find that it’s worth buying one, especially if you can’t find an existing home for sale that matches your tastes and requirements.