Markets

New Construction Made Up 26% of Home Sales in 2021's First Quarter

There is a couple lying on grass. An outline of a house in wood surrounds them.

Image source: Getty Images

If you've been in the market to buy a home, you may be fully aware of just how little inventory there is available. And you may, in turn, be tempted to buy a newly built home if you can't find an existing property for sale that works for you. In fact, newly built homes made up 26% of all single-family homes for sale in 2021's first quarter, according to Redfin. But should you buy new construction? Here are the pros and cons.

The benefits of new construction

The upside of new construction? Having a home that's never been lived in.

When you buy new construction, you get a home in pristine condition, and you also get a home that's unlikely to need major repairs for at least a few years from the time you move in. In fact, newly built homes commonly come with a builder's warranty, which protects you from workmanship issues for at least a year. And often, you'll have extended warranties on individual appliances that give you added protection. (For example, your water heater might have a five-year guarantee, as might your air conditioning system.)

Also, in some cases, buying new construction means getting a say in the actual building process. You may get the option to choose what type of tile you want in your kitchen, what you want your bathroom cabinets to look like, and what countertop material you end up with. Not only does that mean getting a home that really suits your taste, but it could spare you from having to sink money into renovations.

The downside of new construction

The primary drawback of new construction? The cost involved. Due to a major lumber shortage -- which is a key material in building homes -- the average new construction home costs about $36,000 more this year than it normally would. That's not exactly pocket change, and it means you may need to take out a much larger mortgage to finance that home -- and deal with higher monthly payments once you move in.

Another issue you might encounter with new construction is sub-par quality. The old saying "they don't build them like they used to" has been known to apply to new construction -- though some builders are more reputable than others. If you vet yours accordingly, you might avoid this problem (especially if you ask your builder to spell out, in your contract, what materials will be used in your home).

Finally, newly built homes can be subject to delays. If you're looking at a home that's already been fully constructed and is ready to be occupied, this won't be an issue. But if you're buying a home you're able to customize, don't be surprised if your closing gets delayed. That could prove problematic if you run into a situation where your lease is expiring or you're selling an existing home and need to close on it before your newly built home is ready.

Given the shortage of existing homes, many buyers today are turning to new construction to fill that void. While that may be a good option for you, be sure to consider the pros and cons before making your decision.

A historic opportunity to potentially save thousands on your mortgage

Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.

Our expert recommends this company to find a low rate - and in fact he used them himself to refi (twice!). Click here to learn more and see your rate.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More