The chicken or the egg? Buy or build?

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Published Date 11/8/2024

The decision to buy or build a home has become increasingly complex in today's market. The national average cost to build a house is now $329,000 (excluding land) for a 2,594-square-foot home, averaging $126 per square foot. Meanwhile, the median price for an existing home has reached $425,000.

"The pandemic has been a big source of unexpected shifts in supply and demand for all kinds of goods," notes Danielle Hale, Realtor.com's chief economist. While lumber prices have stabilized somewhat from previous peaks, with framing lumber now around $850 per 1,000 board feet, construction costs remain significantly higher than pre-pandemic levels.

For those considering building a new home, here are the main cost components:

• The house shell (walls, windows, doors, roofing) typically accounts for about $99,000

• Interior finishes average $79,000, with kitchens and bathrooms being the most expensive

• Mechanical systems like plumbing and heating run approximately $49,000

• Architect and engineer drawings cost around $4,800

Additional expenses to consider include:

• Land costs (averaging $3,500 per acre)

• Excavation and foundation work ($35,000 on average)

• Building permits ($5,500)

• Inspections ($4,600)

• Impact fees ($4,000)

"When the pandemic began to unfold, builders faced the prospect of buyers disappearing," explains Hale. "And while buyers did pull back early on, the housing market quickly did a 180 with buyers coming out en masse to find a better fit at home." The timeline for new construction typically spans six to nine months. While this waiting period might deter some buyers, new homes offer significant advantages. Everything from pipes to HVAC systems is new and under warranty, potentially eliminating maintenance costs for up to a decade.

Energy efficiency is another crucial factor. Homes built after 2000 consume approximately 21% less energy for heating than older homes, thanks to improved heating equipment and building materials. However, as Hale points out, "Often the regulatory requirements on new construction are stricter than existing buildings. This can mean you enjoy better energy efficiency, but these requirements can also drive up the price of new homes and mean that they take longer to build."

Existing homes, with a median cost of $355,000, average about $237 per square foot for a typical 1,500-square-foot home built before the 1960s. While these homes might be cheaper upfront, they often require more maintenance. Major systems like furnaces ($5,000), HVAC systems ($8,000+), and roofs ($9,000+) may need replacement sooner rather than later.

Don’t expect shade for a while, though. One advantage of existing homes is their established landscaping. The U.S. Forest Service estimates that strategically placed mature trees can add substantial value to a property and reduce annual air-conditioning costs by up to 56%. In contrast, new construction often requires additional investment in landscaping, ranging from $1,400 to $5,700 or more. When it comes to resale value, existing homes offer the advantage of historical data and comparable sales in the area. New construction, particularly in developing neighborhoods, can be more unpredictable, though some buyers in hot markets have seen rapid appreciation in their new-construction properties.

The choice between building and buying ultimately depends on individual preferences, budget constraints, and timing needs. While building a new home might cost more initially and require patience during construction, the long-term benefits of energy efficiency and lower maintenance costs could make it a more economical choice over time.

Realtor, TBWS

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All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

Darren Orshoff is a Marketing and Real Estate professional, licensed Realtor with the California Department of Real Estate DRE#01803671 with WSR Real Estate DRE#01977642.  Darren is also a Certified Mortgage Planner, A Certified Financial Literacy Coach, A Dave Ramsey Trained Financial Coach, A Certified Mortgage Advisor, and while Darren is licensed by the NMLS, he is not originating loans but refers lending transactions to Golden Empire Mortgage, Inc. ("GEM") [NMLS ID No. 2427] licensed by the Department of Financial Protection and Innovation pursuant to the California Residential Mortgage Lending Act, for which he represents as the Corporate Marketing Coordinator.

Darren Orshoff

Realtor, Marketing Guru, Sushi Lover, Dad, Ham

License: CalDRE#01803671

The Key To Your Home!™ at WSR

6736 Palm Avenue, Riverside CA

Office: 951-468-8326

Cell: 951-323-2119

Email: darren@darrenorshoff.com

Web: http://sellriverside.com