In the news this week was another great sign that lending is loosening and demand for homes are increasing. New construction starts in the Triangle area were up 28%. That is great news and is another solid sign that housing recovery is moving the right direction.
Today, I thought I would share some insights on the difference in cost of purchasing a new home in the greater Raleigh area compared to a resale home. Each home buying choice has pros and cons that home buyers should carefully consider before making a purchase. Most home buyers focus on one thing, the monthly payment. In the excitement of a home purchase they forget to look at the other home ownership needs that can add up fast and if not careful can break the family budget.
Triangle New Home Advantage
The biggest advantage most buyer see in a new home is it’s new. Americans love new! They love new cloths, new cars and new houses too. A new home is clean, move in ready and worry free of maintenance for awhile. These are all things people really like about a new home. You can move into a new home with no need to clean, paint or replace anything it is move in ready. The task of moving is physically exhausting and a new home can make that relocation a little easier. This is one of the main reasons so many relocating buyers chose new homes.
Also, new homes come with a minimum of a one year home warranty that will give peace of mind that nothing will break causing unexpected expense to the household budget. New homes are also more energy efficient today. Building standards on heating and cooling seer ratings, new types of insulation, sealed crawl spaces and better technology features are built in to most new homes today. All viewed as a real advantage for today’s consumer. New homes also reduce concerns of allergies from pet dander, mold, or higher maintenance building materials that some older homes may have. Here are the top 5 pros for a new home.
- Move in Ready
- Energy efficient
- Technology upgrades
- Less concern over allergens
- Lower expected maintenance cost for a few years
Triangle New Home Disadvantage – Cost
The first quarter of 2012 the cost of a new home was 22% higher than a re-sale home. On average a new home sold for $276,000 in the greater Raleigh area. A re-sale home in the same area averaged $226,000. There are also hidden cost with every new home purchase that many buyers under estimate or do not consider at all. Remember most home buyers make decisions on one thing and that is the monthly payment.
With new homes on average costing 22% more than a used home this means the buyer will need more cash for closing. Down payments and many closing cost such as origination fee is calculated on a percentage of the sales price. Also, the monthly payment will be higher when you purchase a new home because of a higher loan balance, higher taxes, and possibly higher homeowner’s insurance cost. In most cases the new home will cost more every month and be smaller in size too. New homes in neighborhoods also have a one time fee called Capital Assessment. This fee is part of establishing cash reserves into the Home Owner Association reserve budget. A re-sale home does not have this fee.
In addition, before you move into a new home you will need to immediately purchase window coverings for privacy. This will mean additional ready cash on top of the higher down payment. Some buyers use a credit card for this purchase but, fail to consider what this additional debt will do to the family budget. If you count how many windows there are in any home you will quickly learn that blinds, shudders, curtains and rods will add up to thousands of dollars.
Establishing a healthy lawn in our North Carolina red clay usually takes a year or two and also costs time and money. Furthermore, most new homes are prewired for a security system but, will cost a minimum of $1,000 or more to finish the system out. Then there are the little things that add up fast such as: shelves or cabinets in the garage, fencing, shower curtains, robe hooks, towel bars, dimmer switches, flower gardens and more.
When you buy a re-sale home the previous owner has already invested thousands of dollars in these extras that you will not have to pay for in the purchase. Re-sale homes have the extras and are priced significantly lower than a new home.
Then there is the shocking cost of the difference in price tag for a new home. Remember the average cost of Triangle re-sale home is $226,000 compared to a new home which average cost is $276,000. That is a significant difference in any families housing budget. The entire package of new home extras, along with the premium price paid for a new home can really add up. Here is a recap of the additional considerations:
- Expense of blinds or window coverings for your new home
- Expense of lawn and extra landscaping for your new home
- Expense to finish security, irrigation, landscape lighting or backyard fencing for your new home
- Expense of little things: extra shelves, hooks, dimmers and more for your new home
- Possibly more upfront cash for down payment and mortgage closing cost
Some other considerations for a new home verses used home
When trying to decide between a new home and a re-sale home be sure to look at your total budget for each property not just the sales price and the monthly payment. Make a budget for each choice and factor in maintenance cost of each property. Home warranties for any home of any age may be purchased for as little as $400 a year.
Sometime paying 22% more for a new home compared to a resale makes good financial sense. For example if that re-sale house needs a lot of updating or a new roof in the next 2 years the deferred maintenance cost may equalize the two choices financially. However, in today’s competitive re-sale market many used homes are being made move in ready too. You will find many re-sale homes today are made almost new again with freshly painted interior and exteriors, new carpet, updated appliances and heating systems which may give you the best of both worlds for a lower monthly cost.
Lastly, consider the risk you take when buying in the beginning stages of a new neighborhood. Many people have learned throughout America that when homes are not selling in a new home neighborhood, developers may go into foreclosure or sell off the remaining lots to other builders. When this happens the trend is to build a smaller, less expensive home that will be easier to sell. This inferior product causes the premium price you paid for your new home to plummet. Researching the developer is an important step in the new construction home buying decision process.
As a Triangle real estate professionals for over 27 years we help our clients daily determine which home buying decision will ultimately give them the most long term enjoyment by pointing out these considerations. We help them to calculate their complete home ownership budget so they can make an informed decision. For more information contact Linda Craft & Team, REALTORS for a free home buying consultation. 919-235-0007. linda@lindacraft.com