For many prospective homebuyers, affordability is a major concern. Those who are anxious about high prices might find it worthwhile to consider new constructions.
In California, future homeowners could save a significant amount—potentially hundreds of thousands—by opting for newly built homes instead of purchasing existing ones, as indicated by a report from LendingTree.
Yet, it’s important to note that generally, new homes tend to have a higher price point than older properties across the nation, albeit some states may have new constructions that are comparatively cheaper.
In California, the median price for new homes stands at $591,116, while the cost of existing homes hovers around $784,798 — a staggering difference of $193,682.
Utilizing data from sources like the National Association of Housing Builders and the US Census Bureau’s 2023 American Community Survey, LendingTree has computed the necessary household income to afford either new or existing homes in various states.
This trend feels especially pertinent right now, with the dynamics of the market shifting as economic conditions evolve.
Oscar Way, deputy chief economist at the California Association of Realtors, points out that many buyers, particularly those entering the market for the first time, are exploring both detached homes and new developments from builders.
In June, the median home prices in California dipped to $899,560, falling below $900,000 for the first time in three months, according to the California Realtor Association.
Way adds that a slight uptick in supply over recent months has somewhat balanced the market. Buyers now have a little more selection, and even with lower mortgage rates, there’s still a lingering sense of uncertainty.
According to LendingTree, the discrepancy between the values of new and existing homes in California represents the most substantial gap in the country. The state has faced challenges in meeting housing demand due to factors like rapid population growth and high construction costs.
Victor Curry, a real estate agent, comments that California appears to be two separate markets from a development perspective. While areas like Central Valley and the Inland Empire are experiencing growth and have more affordable prices due to ample developable land, coastal regions like LA and San Francisco have tighter restrictions on new developments.
Natural disasters, such as wildfires in LA County, have exacerbated housing shortages, pushing demand higher and affecting prices across unaffected areas. These wildfires complicate rebuilding efforts due to stringent regulations and could potentially delay construction.
Interestingly, some regions in California are seeing more inventory, leading to a bit of market stabilization, which may entice buyers back, Way suggests.
There’s an increased willingness among builders to either lower prices or provide buyer incentives, which could be beneficial for those entering the market.
Nationally, the median price for new homes stands at $537,791, reflecting an average price difference of $146,581, meaning newly constructed homes are generally 37.5% more expensive than existing ones.
In states like Connecticut and Pennsylvania, new homes can cost more than double their existing counterparts, with Connecticut’s average price being 125.9% higher, while Pennsylvania’s is at 121.4% more expensive.
Potential Drawbacks of New Builds
However, hurdles remain in the process of constructing new homes. Issues like costly land, delays in obtaining permits, local fees, and material costs continue to constrain new construction, leading to stiffer competition for existing homes.
As builders notice an increase in existing homes entering the market, they may need to rethink strategies, according to Wei.
This competition may actually work in favor of buyers, particularly those looking to enter the market for the first time.
Marco Smith, a real estate agent in Maryland and Delaware, highlights that new builds can facilitate homeownership by mitigating major obstacles like affordability. Some builders also provide seller concessions that can help cover closing costs or lower monthly payments.
As interest rates rise and housing prices remain above previous levels, many buyers may shy away from older homes requiring future repairs. New constructions, in contrast, can offer peace of mind, as there are typically no immediate major expenses looming after moving in.
For those considering new builds, there are some attractive options available. California, Vermont, and Delaware rank among states with a significant gap between new and existing home values.
In Vermont, prospective homeowners can expect to pay a median of $352,739 for a new home, whereas an existing home might cost $386,757—a 8.8% difference.
Delaware shows a similar trend, with new homes priced at $373,666 compared to $406,266 for existing properties, resulting in an 8% ($32,600) variance. Households in Virginia, Maryland, and Utah also find that existing homes are pricier than newly built ones.
