The 5 Reasons To Avoid Buying Brand New Homes (In a Low Inventory Market)

Remember the days when snagging your dream home felt like a leisurely Sunday stroll through open houses? Yeah, those days are about as distant as dial-up internet. The housing market these days is a pressure cooker, simmering with low inventory and skyrocketing prices. But is there a glimmer of hope amidst the chaos... new constructions?

Ah, "New Constructions"! Think of them as the forbidden fruit of the housing jungle. Shiny, modern, and (theoretically) customizable, new builds beckon with the promise of escaping the bidding wars and renovation nightmares plaguing the used market. But, like any forbidden fruit, there's a serpent lurking in the details. Let's peel back the 5 layers and see why new construction may not be the holy grail of real estate.

1. Higher Prices and the Lock-In Effect: When Low Rates Bind You to Your Brick Walls

Picture this: you scored a rock-bottom mortgage rate back in the pre-apocalyptic era of 2019. Now, rates are higher than Kim Kardashian's heels, effectively chaining you to your current home like a financial anchor. This, my friends, is the "lock-in effect," and it's the main reason why existing homes are gathering dust faster than a forgotten Razor flip-phone. Who wants to trade their 3% haven for the 8% mortgage maelstrom raging outside?

So, where does that leave us? Enter the knight in shining steel (or maybe just a hard hat): new construction. With inventory finally trickling in, it's become the life raft for buyers trapped in the low-rate limbo. Just look at the numbers: November 2023 saw a staggering 42.4% year-over-year increase in single-family home starts, proving that builders are smelling the desperation in the air (and not just the paint fumes).

But, with the advent of new homes, you are also cursed with (much) higher prices. This is because builders have to factor in the cost of the land, materials, labor, and overhead. In some cases, the price difference can be significant. For example, in November 2023, the median sale price of a new build was $434,700, nearly $50,000 more than the median sale price of an existing home at $387,600.

2. Less Negotiation Room: Higher Costs & Less Concessions

Before you start picking out granite countertops and imagining life amidst freshly planted saplings, let's talk about the not-so-fairytale aspects of new construction.

Negotiation? Not So Much: Remember haggling over that slightly used toaster at the thrift store? Forget about it here. Pre-construction projects often come with contracts as rigid as Mr. Monopoly's top hat. Less wiggle room means accepting the builder's terms, whatever they may be. And trust me, they won't be singing "We Are Family" at closing.

When you buy a new home, builders don't have a lot of incentive to negotiate. They've already set their price, and they're not likely to budge unless they're desperate (and as of 2024 they are not!). This means that you're significantly more likely to pay the asking price (and then some) for a new home than you are for an existing home.

3. Inevitable Delays: When Your Move-In Date Becomes a Moving Target

Picture this: you've signed on the dotted line, picturing yourself sipping mimosas on your brand-new deck come springtime. But then, reality rears its ugly head through construction delays. Months turn into quarters, and your excitement into mild existential dread. Remember that projected delivery date in your contract? It's more like a suggestion, scribbled on a napkin with disappearing ink.

And don't even get me started on financing woes. Imagine losing your deposit because your bank suddenly throws a tantrum when it's time to close. It's enough to make you wish you'd just embraced the leaky faucet in your current place.

New construction projects are notorious for these kinds of delays. There are a lot of factors that can contribute to delays, such as weather, supply chain issues, and labor shortages. If you're on a tight timeline, buying a new home is probably not the best option.

Not to mention, when you buy a typical home, you usually get the first two to three months without having a rent or mortgage to pay. A great time to recoup those savings. New construction delays may leave you paying two housing bills, fees, and lender brides to keep your deal from falling apart!

4. Tax Time: When Your Dream Home Comes with a Hefty Bill

New construction communities are like shiny new babies: adorable, full of potential, and in desperate need of diapers (read: infrastructure). Guess who gets to foot the bill for those fancy new roads and meticulously manicured lawns? You guessed it – YOU, the homeowner! This comes in the form of potentially higher property taxes, or additional "special taxes" levied by local government to fund "neighborhood improvement" projects. So, while you and your neighbors might be bragging about granite countertops, you'll also be quietly weeping over your property tax bill.

5. Hidden Costs: Blindsided Budgets & Sticker Shock

Let's face it, new construction ain't cheap. We're talking median sale prices hovering around $434,700, which is like, a whole car more than the median price of an existing home. Builders are trying to play nice with smaller, more affordable options, but let's be honest, "affordable" in this market is relative. Remember that avocado toast you skipped this morning? Yeah, say goodbye to that for the next decade.

There are a lot of hidden costs associated with buying a new home. These can include things like builder delay-related lending costs, additional tax bills, homeowners association fees, landscaping costs, and appliance upgrades. Be sure to factor in all of these costs before you make an offer on a new home.

There is No Sunshine, Without Rain!

If you're thinking about buying a home, it's important to weigh the pros and cons of both new and existing homes. New homes have their advantages, but they also have their disadvantages. If you're on a tight budget or you're not comfortable with the risks of delays and hidden costs, you might be better off buying an existing home.

Ultimately, the decision of whether to buy a new or existing home is a personal one. There is no right or wrong answer. The best thing you can do is to do your research and make the decision that's right for you.

Remember, home ownership is the most assured and quickest way to financial freedom. Regardless if you buy new or used, entering the world of real estate is a rewarding adventure that opens countless doors. So good luck future home owner and enjoy your home-buying journey!