Navigating the Shift: Is It the Best Time to Buy New Construction Homes?
By Are you thinking about buying a new construction home? With recent changes in the housing market, it’s important to understand the dynamics between new construction homes and existing homes. In this article, we will explore the pricing trends, market metrics, and regional variances to help you determine if it’s the best time to buy. Let’s dive in!
Recent Trends in Newly Constructed Homes Prices
The average sales price of newly constructed homes has been declining in recent months, dropping from $568,000 to $487,000 as of October. Similarly, the median sales price of newly constructed homes has witnessed a decline of more than 17% since the peak of US home prices in 2022. These numbers have sparked the question of whether it’s a good time to buy a home, particularly a new construction, as it is experiencing the largest decline.
Evaluating the Pricing Gap: New Constructions vs. Existing Homes
There is a significant difference between the pricing of newly constructed homes and existing homes. While the average sales price of newly constructed homes is falling and reaching new lows in October, the average sales price of existing homes is rising and reaching new highs after a dip in 2022 and early 2023. This difference in pricing can be attributed to various factors that we will explore further.
Understanding the Month Supply Metric and Its Impact on Housing Prices
The month supply metric plays a crucial role in understanding the balance between supply and demand in the housing market. When the month supply is greater than six, there is excess inventory relative to the pace of sales, leading to price declines. Conversely, when the month supply is lower than six, there is limited inventory relative to sales, resulting in upward pressure on prices.
The Role of Supply and Demand in New Home Prices
The new construction market currently has a month supply of 7.8, indicating a surplus of inventory and causing prices to decline. This extended period of elevated month supply has resulted in a significant 17.6% decline in the median sales price of newly constructed homes, the second-largest decline on record. On the other hand, the existing home market has a much lower month supply, leading to rising prices.
Regional Variances in the Housing Market and Their Effects
It’s crucial to note that the housing market varies across different regions. While overall existing home prices are rising, areas with a lot of new construction are experiencing declining prices. These declining prices in the new construction market can also impact the existing home market in those areas.
Assessing Home Valuations: The Price-to-Income Ratio
Considering the valuation of the new construction market, the average price-to-income ratio has normalized to around 8.4. This suggests that the market currently has roughly average valuations. As the month supply continues to decrease, the valuation measure will likely decrease further, potentially leading to below-average valuations in the coming months. On the other hand, the existing home market is currently overvalued, with a price-to-income ratio of 9.2, well above the average of around 8.
Analyzing the Market: When Is the Right Time to Buy?
In conclusion, if you live in an area with a lot of new construction, it’s a buyer’s market with average valuations and the potential for further price drops. However, if you only have access to the existing home market, buying now would mean purchasing at historically high valuations. It’s essential to consider market trends, regional variations, and your personal financial situation when deciding whether it’s the right time to buy a new construction home.
By understanding the pricing dynamics, supply and demand metrics, and valuations, you can navigate the shifting housing market and make an informed decision. Happy house hunting!
