Why building new homes might be better than buying
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For anyone shopping in this crazy-tight home market, the scales are tipping further toward new construction.
Driving the news: The median price for existing homes is officially more expensive than that of new construction, Axios' Matt Phillips writes.
Why it matters: It's a flip-flop of a long-standing relationship — one of many ways interest rate hikes are transforming markets.
By the numbers: Data released Wednesday showed the median new U.S. home price in June was $415,400 — a hair underneath the existing-home median price of $416,000 (released last week).
- Context: With mortgage rates still hovering around 7%, homeowners are holding on to homes financed at low rates, squeezing the supply and keeping prices at nosebleed levels.
- Meanwhile, homebuilders are more willing to sell affordable smaller houses to tap into demand from frustrated buyers.
The big picture: It's one more advantage for homebuilders, which are using a wide range of tools to scoop frustrated buyers out of the existing home market.
- Builders are throwing in upgrades and offering mortgage buydowns, with interest rates lower than buyers can find on the open market, for either a short period or the full life of the loan.
Zoom in: Prolific Indianapolis builder Onyx+East is advertising a 2-1 rate buydown, which lets buyers shave 2% off their mortgage rate in the first year and 1% in the second.
- That means a lower monthly payment for at least two years, with the possibility of refinancing if rates go down later.
- Most large builders have offered some version of a mortgage buydown within the past year.
💠James' thought bubble: New homes also can save money on the back end because they meet modern codes and usually don't require excessive maintenance.
- I say this as an old-house owner who's replaced an HVAC system and repaired a foundation this year.
The bottom line: It's a strange environment in which buyers can build new homes at a lower price — and snag a lower interest rate — than they'd find in the existing home market.