Don’t look now, but the most affordable home might be a newly built home.
The last year has witnessed one of the most competitive real estate markets in history. Low supply and high demand for single-family homes ignited home prices, shrinking the price gap between existing properties and new construction homes.
Meanwhile, escalating renovation costs combined with the higher purchase prices have made it far more costly for homebuyers to modernize their property and bring up to speed.
Toss in the added purchasing power delivered by low interest rates and the draw of new construction has never been so great.
Supply, Demand, and a Hungry Market
Low inventory is driving the present-day’s heated real estate market. According to Realtor.com, available home inventory at the close of February 2021 was nearly 50 percent lower than February 2020.
Amid slim supply, there are also more house hunters in the market. The number of first-time homebuyers scouting properties has climbed in 2021 while move-up buyers, particularly those trading their spot in multi-unit dwellings for a single-family home with private spaces, have entered the market as well.
The mix of low supply and high demand has spurred a rather predictable consequence: elevated prices. Home prices are up more than 10 percent year over year, according to CoreLogic, and rising at a pace not seen since 2006.
And there seems to be little relief on the horizon, as forecasters expect prices to climb throughout 2021 and into 2022. Researchers at Zillow predict that the nation’s median home value will rise about 10.5 percent over the next year, while Freddie Mac’s researchers anticipate a more modest, yet still significant gain of 5.4 percent.
In the meat of the market – homes priced $300,000-500,000 in metro Chicago – buyers have flocked to existing properties, including some eager buyers making above-ask offers on the spot. The aggressive tactics then elevate the market on comp homes. Many sellers are asking themselves: If my neighbor sold in one day for $400,000, then why shouldn’t I list my similar home for $425,000?
Even for those who land an existing property, the price to modernize and renovate that home is bringing some sticker shock. Supply chain issues have made it expensive and challenging to secure materials like lumber while many contractors, flooded with job opportunities, have raised their prices as well.
Personal finance expert Sam Dagen told homeowners they should “expect everything to cost 50 percent more and take 50 percent longer.”
The Appeal of New Construction
The combination of low supply, high demand, and rising prices to purchase and renovate a home has placed a bright light on new construction.
Some house hunters are not only turning to new construction to escape the frenzied environment of the resale market, but because more and more see it as a feasible and smart investment, especially given mortgage interest rates.
At the start of 2020, the national average on the popular 30-year fixed mortgage rate sat around 3.75 percent. Then, it fell and fell and fell again, setting more than a dozen record lows over recent months. In June 2021, the 30-year national average hovered at 3 percent.
Today’s 30-year mortgage rates are down more than 50 percent from 2000 and about one-third lower than they were in 2010, a time in which “historically low mortgage rates” generated hefty headlines as the nation crawled out of the Great Recession.
Lower rates have given homebuyers increased buying power. Consider this: a homebuyer with a 30-year interest rate of 2.75 percent gains more than $23,000 in spending power compared to one holding a 3.25 percent rate.
Beyond the low interest rates, those buying new construction also avoid any immediate renovations, including the costs and hassles that come with remodeling and repairs.
This has all heightened the appeal of new construction.
With a new Gallagher and Henry home, for instance, you will pick your own flooring, cabinets, finishes, and more while the newly built home will feature all new materials and mechanicals to minimize maintenance expenses. Gallagher and Henry’s ENERGY STAR-certified homes, meanwhile, ensure lower costs and enhanced comfort.
New construction, once something a qualified homebuyer might have mistakenly overlooked, is now a more real and attractive reality, so don’t be afraid to dive in and explore the possibilities with Gallagher and Henry.