There has never been a better time to build a new home instead of buying an existing one. Forbes predicts the rate of single-family home builds will continue to increase throughout this year.
However, with any such bold generalization, there are gray areas. In this blog, we put on our objective cap to give you the real, unbiased dirt on building versus buying in 2021. Let’s dig in.
Record Low Home Inventory
In December 2019, the National Association of Realtors announced the inventory of available homes for purchase had reached its lowest point in more than 20 years. They had no idea 2020 would blow that record out of the water.
The COVID-19 pandemic caused several ripple effects that make it a challenging market for home buyers:
Staying Put: Fewer people are listing their homes. Those who don’t need to sell are choosing not to in order to avoid the potential contamination issues of open houses and walk-through traffic.
High Buyer Demand: Many companies went remote and vowed to stay that way. People are flocking from expensive metropolitan areas (normally the hubs of industry) to smaller towns and more rural areas, like Southern Wyoming and Northern Colorado. This has increased buyer demand, driving up prices as well as competition for available homes.
Low Interest Rates: Pre-2020, mortgage rates were already declining. In response to COVID-19 and in an effort to encourage borrowing, the Federal Reserve further lowered their borrowing rates. Banks responded in kind setting records for low mortgage rates in November 2020. Though interest rates are expected to climb throughout 2021, they will continue to be low compared to historic numbers. Thousands of people are taking advantage of these low rates to buy a first home or to upgrade.
Fast-Moving Market: Houses spent an average of only 25 days on the market last year, and 2021 will be comparable. Buyers have to be ready to make (and fund) a purchase decision almost immediately when a house comes on the market. Note: we did not say as soon as their “dream house” comes on the market. The competition is so fierce that many buyers are settling for houses that don’t fulfill all, or even many, of their preferences.
The Dirt? Building wins!
In previous years, buying an existing home was basically guaranteed to take less time than the average six month-build timeline. But now, with such low home inventory, buyers who have very specific home or location requirements may find themselves waiting just as long as someone who chooses to build.
During the purchase process, buyers may also experience delays on necessary professional services like home inspections or appraisals due to the crowded market.
So, what is your time frame? If you need to move quickly due to a lease ending, relocation, life event, or another reason, buying an existing home is much faster than building, provided you’re willing to be flexible on where you live and/or the home’s features.
The Dirt? A toss-up between building and buying.
Location, Location, Location
If you’re set on a certain established neighborhood, there is no choice but to buy existing. Just plan to wait and be prepared to quickly act when a house is available. Building in an established neighborhood simply isn’t possible.
While buying wins this category, we want to remind you that you may have to wait much longer to get a house in your desired neighborhood. Why?
It has always been a matter of some luck to get a house in a particular neighborhood. You have to hope that a current owner is ready to sell. Now, people in your desired neighborhood might be less inclined to sell, and if they do sell, low home inventories mean the competition will be fiercer than ever.
The Dirt? Buying wins!
You Know What You Like
Though some build experiences involve very little buyer choice in layout or design, Gateway’s unique design-build approach gives our clients much of the personalization of a custom build without the hefty price tag.
Do you like the idea of choosing your floor plan and being able to modify it, selecting the inside and outside finishes, and determining countless details all the way down to the location of outlets and entertainment systems? If so, you are the perfect candidate for building.
The dirt? Building wins!
Charming Vintage or Stunning New Build?
When it comes to style, you need to ask yourself whether the potential charisma of an older house or the glamour of a brand new house is a better fit.
If you’re worried that building means being locked into a rigid set of options, that’s a non-issue for Gateway clients. We offer four build series that encompass different styles and budgets, giving you plenty of room to build a house to your liking. Between that and decor, you may be able to capture the charm of vintage with the upgrades and flawlessness of a new home.
The Dirt? A toss-up between building and buying.
Price: New Build or Buy Existing?
Nationwide, the average existing home purchase price is lower than the average home build price. However, the build data includes expensive custom home builds.
Depending on the square footage, features, desired location, and other factors, the purchase price for an existing house may be slightly less expensive than building new. But, as you’ll see below, sale price isn’t the only financial factor to weigh.
The dirt? Buying wins by a narrow margin.
Surprise! Budget for Repairs & Energy Costs
Did you shudder? Home maintenance can be time consuming. An unexpected repair or replacement can also flatline your bank account. When you buy an existing house, your inspector can only make you aware of existing and potential issues. But it’s not a perfect predictor. When something goes wrong, breaks down, or just wears out, are you in the position to fix it yourself or pay someone to do it?
Furthermore, new builds are equipped with many energy cost saving features. For example, Gateway homes come with Nest Learning Thermostats, LED lighting high efficiency water heaters, energy star appliances and sump pumps. These and other new build features will significantly reduce energy consumption and costs.
It’s for this reason that older couples will buy new if they can. They aren’t as physically fit, and they are often on fixed incomes without room for financial surprises. It’s not just the elderly who want home ownership to be as hassle-free and predictable as possible. If you don’t have a lot of extra time or don’t have a slush fund beyond funding the house, building may be the route for you.
We will give one caveat: landscaping. Though Gateway does include front yard landscaping with sprinklers for homes built in city subdivisions, some builders don’t. If you build, you’ll likely be responsible for at least some landscaping. Most existing homes will feature existing landscaping. If you plan to build, be sure to include landscaping in your budget.
The dirt? Building wins!
What’s Best for Us is What’s Best for You
There are more factors that go into a build or buy decision, but we hope this article gives some helpful context to anyone considering a new residence.
In these times of upheaval, the smartest thing you can do is rely on professionals to guide you through the process. Just like you shop around for the most qualified and personable Realtor, we encourage you to research different builders in the area.
We are confident that Gateway Construction’s friendly knowledgeable team, customer supportive design-build process, added safety and convenience features, and superior craftsmanship will stand out from the rest!
Contact us if you’re interested in building or learning more about what the process would look like for you.