There’s a reason so many buyers are struggling to purchase homes this year. Not only are mortgage rates high, but housing inventory is extremely low.
As of the end of June, there was only a 3.1-month supply of homes on the real estate market nationwide, according to the National Association of Realtors. It can take up to a 6-month supply of homes to meet buyer demand in full.
Given the lack of available existing homes, buyers are increasingly turning to new construction. In May, new construction sales were up 20% from a year prior, according to a joint report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. But while buying new construction certainly has its advantages, it also has its drawbacks.
The upside of buying new construction
The benefit of buying new construction is pretty clear — you get to purchase a home no one has lived in before. That means the home is apt to be in pristine condition, and your appliances and fixtures will all be new. Combine that with various warranties, and your likelihood of having to make major repairs in your first few years in your home is pretty slim.
Plus, if you buy new construction at a point when your home isn’t finalized, your builder might allow you to customize certain features. You may be able to choose your wall colors or the type of flooring you want. You may even be able to do things like design your own kitchen based on your preferred layout.
The downside of buying new construction
While new construction has its benefits, one major pitfall to consider is the cost. NewHomeSource reports that newly built homes typically cost about 17% more than existing ones. You might also have to put down more money upfront when you buy new construction.
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In some cases, mortgage lenders will accept as little as 5% down on a conventional loan for an existing home. But you might have to put down a lot more than that on your mortgage if you’re buying new construction.
What’s more, if you’re given the opportunity to upgrade during the construction process, you won’t get to shop around with different contractors for that additional work. You’ll have to use your builder. And whatever price they give you is the price you’ll have to pay for the upgrades you want.
Also, when you’re buying a home that’s still being built, delays are not only possible, they’re practically inevitable. That could make things stressful for you if you’re on a specific timeline.
Plus, while new construction homes might look nice, they’re not always made of the highest quality materials. That old saying “they don’t make ’em like they used to” can easily apply to homes built today.
At a time when housing inventory is frustratingly low, it’s easy to see why more buyers are turning to new construction. But before you take that leap, consider the pitfalls you might encounter if you purchase a newly built home.
And be especially careful if you’re buying a new home that’s not yet complete. It may be nice to get a say in the design process, but you risk extensive delays that could put you in a serious bind.
