Why New Construction Homes Are Expensive?

Premium Is More Affordable

Older homes require more updating and repair and replacement of larger components, which can be expensive. - Ryan Lambesis, a related realty in Chicago, and L2 Properties have seen fluctuations in premiums for newly built homes over time, said Rick Palacios, research director at John Burns Real Estate Consulting in Irvine, California.

Historically, newly built homes have cost about 1 percent more than resale, based on the national average price figures from the 1960s.

Prices in the middle are not an absolute statistic because they are affected by low-cost and high-value assets as well as market direction. Still, they can be useful long-term indicators.

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In the 2010-12 timeframe, the premium for newly built homes was significant, and in 2013 it increased by 0 percent, says Palacio. Since then, the premium has fallen by about 30 percent. This means that newly built homes today are less expensive than resale.

Pottery was the discrepancy, with builders building larger homes in the main market with higher land costs due to higher post-recession preference. Builders also visit buyers who have a good place to shop at a time when lenders have strict guidelines for borrowers. Increased government regulations and rising costs for construction materials and workers were also important factors, Palacios explains.

Part of the premium is coming down because when builders start to make mortgage financing more available, buyers will be targeted to start building smaller homes on the way out.

“Now the story is that it’s compact, which we think is a good thing for homes,” says Palacios.

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Premium Varies By Location

The local housing market does not always reflect the trend of national real estate. Builders, realtors and buyers may see a national trend locally but it will feel different in different markets or in different areas.

Hoffman cites Chicago as an example. He says his perception is that premiums have dropped in the city and widened in the suburbs. Buyers who can afford remodeling will find better deals for older city homes, while demand for newer suburban homes has increased.

“Consumers have seen the negative effects of the good part of the decade without building a new decade. “Most (recently built) homes are close to a decade of obsolescence, and pickings are very thin in resale," he says.

Age of the Home

Petty pointed to Atlanta as an example. He says the metro area "fell sharply in the 1980s and '90s. Those homes are too old to attract buyers and the facilities in that area can be disrupted. ”

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The average resale home is 40 years old.

Ryan Lambesis, a real estate broker and co-founding partner of L2 Properties, a real estate development company in Chicago, says older homes need more updating and repair and replacement of key components.

All of these factors affect the price premium for newly built homes.

With a new-construction home, repair costs are built into the cost premium and the buyer is protected by the builder’s warranty and the manufacturer’s warranty.

“New construction will always be more expensive,” says Lambesis. "There's a value in that you're taking the initiative (then) not paying."

Given the many benefits, the box concludes: “There is no reason not to move into a new building.”

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Why New Construction Homes Are Expensive?