In many areas across the United States, potential homebuyers face a major issue: there simply aren’t enough houses for sale. One reason for the current national shortage of housing inventory is the significant increase in mortgage rates. We saw historically low interest rates in 2020 and 2021, but the Federal Reserve raised interest rates ten times in a row just since March 2022. As of today, December 20th, 2023, the average 30-year fixed mortgage interest rate was hovering around 7.5%, nearly double what it was a year ago.
Consequently, homeowners who bought or refinanced their properties at lower rates are understandably hesitant to sell and purchase another property at much higher interest rates. When housing inventory is limited, it makes the process of searching for a home even more challenging for potential buyers. They’re faced with a choice between getting into a bidding war, overpaying in desperation, or waiting — possibly for a long time — until more options become available.
New construction is a smart alternative.
Rather than fighting for the few existing homes on the market — and either settling for something you don’t really love, paying too much or missing out entirely — homebuyers need to think outside the box.
One option worth exploring is new construction homes, which provide an alternative path to homeownership. A new construction community refers to a planned residential development where multiple homes or buildings are built simultaneously or one after another on the same plots of land with the same crews. These communities typically offer a range of housing options, modern amenities and shared facilities and are carefully designed to create an integrated and attractive place to call home.
It’s important, however, to differentiate new construction from custom building. While custom building usually requires a Construction Loan to finance the cost of building a home you help design, new construction allows you to work with a regular mortgage, albeit with a few different steps in the process and different strategies for when you make your move.
5 reasons to consider a new construction community
Let’s look at some factors that homebuyers should take into account when considering a new construction home versus an existing home, particularly when the housing market inventory is low.
1. You can customize it! One of the biggest perks of purchasing a new construction home is the freedom to customize it to suit your preferences. Depending on the builder, you can often choose your desired floor plan, finishes and upgrades, allowing you to create a home that fits your needs and personal style — within reasonable limits, of course.
2. It’s modern living. New construction homes often come equipped with the latest features and amenities, like energy-efficient appliances, smart home technology, state-of-the-art building materials and built-in surround sound systems. Compare this to an existing home, and you get improved energy efficiency, lower maintenance costs and a more comfortable and enjoyable living space.
3. Maintenance is hassle-free. With a new construction home, you typically get warranties from the builder covering structural or mechanical issues for a certain period of time. And since everything is fresh and shiny, you won’t have to worry about rushing into repairs or maintenance like you would with older homes. In some cases, yard work is done by a hired management company.
4. Safety first! New construction homes are built to meet the most recent building codes and safety standards. This means that they often incorporate updated safety features, such as advanced fire suppression systems and improved electrical wiring, providing an extra layer of security for you and your family.
5. Move in on your terms. With a new construction home, you get a more predictable timeline for moving into your dream home since you’re not dependent on the current occupant moving out. And, since you’re the first owner, it’s all about making a fresh start in a spotless new place.
Are there drawbacks to buying a new construction home?
Yes, there are a few things to remember when considering a new construction home.
1. Location: New construction homes are often built in developing areas, which may be farther away from established neighborhoods or convenient amenities. It's important to factor in the home's location to your lifestyle and daily needs, such as proximity to schools, recreation, dining, shopping centers, and transportation options.
2. Construction timelines: Construction timelines can be unpredictable and may be delayed due to weather, labor availability, or permitting. It's important to have a contingency plan in case of delays, especially if you're moving out of a rental and need to find temporary accommodations. Stay in close contact with your builder to stay informed of the construction progress.
3. Price: The price of new construction homes is typically set by the builder, and there is often little room for negotiation. However, you may be able to negotiate the price of upgrades or features.
4. Future developments: If you're buying in a developing area, it's important to research planned developments that could impact the appeal of your new community. Consider the potential effects of upcoming commercial projects, road construction, or changes in zoning regulations on your quality of life and property value.