How To Buy A New-Construction Home In 2023
By: John Garcia | Date Posted: November 23, 2022
Table of Contents
- Why Is 2023 A Bad Year For Real Estate?
- How Can A New-Construction Home Save You In 2023?[+]
With declining inventory and a surplus of low-value real estate on the market at skyrocketing prices, 2022 is the last year of the housing bubble. Once it bursts, older houses will lose value and price drastically. But if you buy a new-construction home, you can avoid unprofitable, overpriced properties that’ll need maintenance and updating.
To buy a new-construction home in 2023, choose large lots planned for semi-custom or a custom home over readymade properties. Find builders with a track record of consistency and flexibility. To increase the value, make the house futureproof with easy modification and maintenance.
Like 2008, 2023 is shaping up to be a terrible year for real estate. To avoid tanking value and bad ROI, you have to understand housing.
Why Is 2023 A Bad Year For Real Estate?
The housing market till August 2022 was an aggressive seller’s market. Prices had skyrocketed over 30% in many areas, with median house prices already being over $600,000. In Austin, Texas, the median house price is $695,000, and new listings have a median price of $649,000. This is after the market has begun to fall, and it is still over 12% higher than the prices of August 2022.
This overinflated state of the housing market was induced by 4 factors.
- The pandemic forced people to stay at home. Many sought roomier and more comfortable houses to alleviate the claustrophobic seclusion they experienced. In 2019, 5.64 million people bought houses, which increased to 6.12 million in 2021. This is staggeringly higher than the previous years.
- Inventory failed to meet the rising demand. 31% of all the house buyers in 2021 were first-time buyers, the highest in 26 consecutive years. Compared to millions of interested buyers, there were only 726,000 units available from 2021-2022.
- The option of paying only 3.5% as a down payment with low mortgage rates from private insurance agencies was too lucrative for many to pass up. In 2019, over 1.66 million home buyers took advantage of this system.
- Many buyers bought houses from peer pressure or impulse. Over 64% of Millennials from 2019-2021 regret their purchase, with 45% of GenX and 1/3rd of older generations expressing similar regrets.
These 4 factors created a vicious cycle of constant lack of supply and mounting demand. Sellers increased prices of low-value or bad lots by exorbitant amounts.
Construction agencies kept only profit and frequency in mind while producing condos and other such housing units. The market became saturated with real estate that would require frequent, expensive maintenance efforts and lower value over time.
This is similar to the housing bubble burst of 2008. Low initial mortgage rates, lower credit score buyers, and variable payment rates led to an unsustainable increase in demand and buyers. The inflated market collapsed soon after, with high mortgage default rates and falling real estate values. You can read more about it here.
How Can A New-Construction Home Save You In 2023?
If you buy a new-construction home, you eliminate these issues.
- High price for low-value houses.
- Frequent and expensive maintenance.
- Updating and modification costs.
- Restricted space.
- Low building material quality.
- Eroding resilience.
- Outdated risk management strategies.
- Inability to extend or add rooms.
These are the biggest risks you’ll have to take if you buy an old property in 2023. With new-construction homes, all are up to recent construction codes and modernized space management strategies. However, not all new-construction homes are ideal.
Strategies For Buying A New-Construction Home In 2023
As I’ve mentioned, the consequence of the housing bubble is a decline in construction quality. So, buying any readymade or set home is inadvisable. To prevent losing the value of your house, you need these advantages.
- Made according to recent construction and safety codes.
- Made with high-quality materials.
- A large lot with room to expand.
- Easy to modify.
- Resilient, needing infrequent and cheap maintenance.
- Furnished with up-to-date technology.
- Updated with modern amenities.
- Styled according to modern design trends.
- Custom furnishings for functionality and saving space.
Your house needs to be future-proof, with construction, amenities, and design that would serve the owner long without needing modifications. You can only get these advantages if you buy a semi-custom or custom new-construction home.
The Basics Of The House Buying Process, And How to Hack It
The basics of buying a new-construction home are mostly parallel to buying other housing, with some critical differences. I’ll outline each step of the process here.
- Get approved for a construction loan. Submit your credit score, credit history, employment eligibility, and tax return information with other essential information to an underwriter for evaluation.
- Find a seasoned real estate or buyer’s agent who can research and find a lot for your home.
- Find a builder who’s flexible, willing to listen, and help you find an ideal lot.
- Get a blueprint of the house with estimated costs. Add any upgrades that make the house futureproof and comfortable. Use the modified version to appraise future value.
- Conduct routine walkthroughs and inspections during the construction process. Hire an expert inspector to come along, and monitor the process.
Now that you know all the steps, here’s how you can hack them.
- Construction loans are short-term with higher interest. Strictly follow the 28/36 rule, and understand you’re purchasing power. For example, with a yearly income of $200,000, you can afford a house for up to $427,579 with a conventional construction loan.
- Down payments have to be 20% or larger. Aim to make as large a down payment as you can, as it’ll make the construction loan less burdensome.
- Look for markets with stable median prices, low days on the market, lower relisting and price drop rates, MAI value of 27-33, and large lots. Markets in Denver, Columbia, Idaho Falls, and Benson are good prospects. These state-of-the-art properties are worth your attention.
- For a positive underwriting, have a credit score of 680 or more, a debt-to-income ratio lower than 45%, proof of stable income, a licensed builder, and projected home value with blueprints.
- Design the house to be as future-proof as possible. Include modern amenities, design luxurious bathrooms and kitchens, work on the curb, introduce alternate power solutions, and smart HVAC heating and lighting.
- Builders won’t give you a discount on the agreed price. But any custom work is negotiable, so reduce prices by procuring materials yourself or contracting the staff separately.
- Don’t skimp on inspections. Get an expert who will aggressively monitor the construction process, so nothing is out of line.
The main goal of buying a new-construction home is to ensure the value of your house doesn’t go down. And picking a stable market with a large lot is crucial to that process. You can design your house to be future-proof, but it’ll mean nothing if it’s in a fluctuating market. So, take months to survey markets before you make your decisions.
Thank you for reading!