The highest mortgage interest rates in decades have made many homeowners reluctant to sell. That has led to a lower inventory of existing homes for buyers to choose from. As a result, new home construction is booming. Here’s what you need to know about home builders’ activity.
Homeowners aren’t moving on
Historically, many houses have become available as homeowners buy new homes and put their existing houses on the market. But today, many homeowners, whose current mortgages may have an interest rate of around three percent, know they will pay a much higher rate if they buy a new home. This has discouraged them from selling and lowered the inventory of listed homes. In response, home builders have seized an advantage by stepping up new home construction.
Home builders have competitive advantages
Home builders of new construction homes can offer incentives to buyers that sellers of existing homes are hard-pressed to match. Builders can:
- Provide buyers with an allowance for adding upgraded features.
- Help with closing costs if the buyer uses the builder’s preferred mortgage company.
- Offer to buy down mortgage points for the first few years, again if the buyer uses the preferred lender.
- Offer variations on floor plans, façades, lot sizes, and more.
- Provide a tiered warranty for as long as 10 years, starting with wall-to-wall, 100 percent coverage the first year.
An existing homeowner with one house to sell cannot match the scale builders have for offering such incentives.
Townhomes and condos are particularly appealing
New construction home builders also focus on properties of particular interest to the youngest and oldest buyers. Both groups are looking for places to live that are less expensive than traditional single-family homes, which has led to big increases in sales for new townhomes and condominiums.
With the financial incentives often available on new construction townhomes or condos, even the youngest buyers can afford a first home. Baby boomers may be able to buy such homes without a mortgage by using the equity from selling their single-family homes.
Townhomes and condos also appeal because they require little to no exterior maintenance. Buying a traditional single-family home means signing up for every aspect of outside maintenance, from exterior painting to gutter cleaning and lawn mowing. Not so with townhomes or condominiums. Their owners need to maintain only what’s within their walls because the homeowners association generally handles all exterior maintenance and upkeep.
Related – Condominium or Landominium: Similar or Different?
