With the ongoing housing crisis, there’s been a renewed push to build new homes across America. Unfortunately, a newly built property typically costs more than an existing one.
On average, a brand new unit is roughly 37.5% more expensive than existing units, according to LendingTree’s analysis. However, the report also discovered something surprising. Potential homebuyers can save nearly $200,000 if they buy a new home rather than an existing one under one specific condition:
Here’s why the Golden State’s notoriously unaffordable housing market is so favorable for investors and homebuyers looking to build.
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California’s unique dynamics
Typically, the rising costs of labor and construction materials means newly built homes are more expensive than existing ones, according to the National Association of Home Builders. Given their modern design and finishes, buyers are also willing to pay a premium for this new inventory.
That’s why new homes can cost as much as 125.9% more than existing homes in states like Connecticut, according to LendingTree’s report. Only six states buck this trend, but the gap is miniscule in many of them. In Utah, for instance, a newly built unit costs just $1,659 less than an existing one.
However, California’s gap in home prices is exceptional. This is because much of the state’s new inventory is constructed away from the coast in areas with less competition and cheaper land prices, according to SFGATE. By comparison, existing homes tend to be concentrated in the state’s famous urban centers such as San Francisco and Los Angeles.
“When people are as tightly packed in as they are in San Francisco and parts of LA, those existing homes get to be so expensive, and there’s just not really that much room to build new,” LendingTree’s chief consumer finance analyst Matt Schulz told SFGATE.
This dynamic means a typical Californian new build is roughly $193,682 cheaper than an existing unit. That’s a difference of 24.7%.
For potential homebuyers who don’t mind living outside of the main hubs in California, buying a newly built unit could be a good idea. But even if you don’t live in California, the advantages of new builds could make them worth the premium.
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Should you consider a new build?
Besides the modern finishes and contemporary designs, newly-built homes also offer some financial advantages that make them worth consideration.
According to Zillow, a new construction typically has better energy efficiency, which means lower utility bills during your stay. New homes also cost less to maintain because everything from the plumbing to the windows are brand new. In fact, builders even offer warranties to cover any unexpected repair costs that occur shortly after you move in.
Some of these long-term cost savings could gradually offset the upfront premium you pay for the home. This could be why 52% of potential homebuyers surveyed by Zillow in 2024 said they were more or only interested in new construction units.
Whether you’re in California or elsewhere, the decision between a new build and an existing home ultimately comes down to balancing location, budget, and long-term costs. For some buyers, especially those willing to live outside high-demand areas, a new home could be a smart investment.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
