Building a house instead of buying it allows you to customize it to suit your needs, among other benefits. However, due to material and labor shortages, construction time has increased, and the price tag reflects this trend. According to the U.S. Census Bureau, the median price of a new home in November 2022 was $543,600, compared to $496,900 in January 2022.
The housing market is clearly changing as high home prices, high interest rates and inflation exacerbate an affordability crisis. And it’s becoming increasingly complicated to determine whether it’s cheaper to build or buy.
Average construction cost of a house
NAHB pegs the average home construction cost through May 2022 at $449,000. This includes the cost of buying the property.
Considering the purchase of land, there is an 8% difference between the average construction price and the purchase price. Building can become more expensive depending on location, building plans, and material and labor costs.
What factors affect the cost of building a house?
The first is construction cost. Not only does it depend on the builder, but also on the materials used and how long you want to build, which can vary greatly.
You can save a lot of money if you have the time and skill to do some construction work yourself. Just don’t try to do work that’s beyond your capabilities. Independent inspections will be carried out and the home must be mortgageable to have a reasonable resale value.
Other Construction Costs to Consider
Other variables in the build process are:
- Site costs: There are several site costs for builders, including building permits, water and sewer inspections, and architectural and engineering plans, to name a few
- Foundations: A new home with a basement adds to the total cost. But even if not, you still have to pay for the excavation, foundation, concrete and retaining walls
- Framing and Siding: Not only will these costs vary based on the square footage and floor plan of the home, but you will also need to factor in the price of building materials and labor costs (such as your general contractor and any subcontractors)
- Major Home Systems: This includes plumbing, electrical, and HVAC systems. Likewise, plumbers and electricians have labor costs
- Interior renovations: Don’t forget to customize your home’s flooring, drywall, countertops, appliances, and other amenities
- Property: landscaping, exterior structures, decks, driveways and cleanup fees
You can build a basic house for about $150 per square foot of living space. But if you want the best, it’s easy to spend $500 per square foot.
No doubt, you could easily beat that top figure if you chose to import acres of Calacatta-Carrara marble from Italy for your 5,000-square-foot home.
Of course, some construction projects are on time and on budget. But it’s very common for both to overflow. So build in a 5% or 10% ROI to cover unexpected construction costs. This is especially true if you’re the type of person who easily overspends when faced with an array of options.
Financing New Construction
Another variable is your financing plan. Some people use mortgages to buy land and then use savings or construction loans to finance the project.
But when the job is done, you’ll often need to refinance your mortgage to pay off the bank or top up your savings. That means two types of closing costs: one for the original home purchase loan and one for refinancing.
At the same time, interest rates on home loans are often higher than on standard mortgages. In addition, there are strict regulations on construction progress and funding allocation.
Another option is a home loan. Using one of these, you can borrow money to buy land and build a house. Funds are released when you reach pre-set building milestones
Average cost of buying a home
Of course, the sale price of the home is a determining factor in the final decision of whether to purchase an existing structure. Other financial obligations involved include working with a real estate agent or realtor, closing costs, required down payments, and more.
According to Carroll, existing home prices depend on factors similar to those above, as well as the age of the home and comparable properties around it. All factors contribute to the total cost of a home. “In Louisiana, for example, the price difference between markets can exceed $100 per square foot,” he said.He points out that buying an established home is often the more cost-effective option, but of course there are other considerations — location is a crucial one. “Homebuying varies widely in different neighborhoods,” Narofsky said. “For example, this year I’ve seen homes that require a lot of improvements and updates that cost over $3 million on an acre or two.”
Building vs. Buying a Home
To answer the question, “Is it cheaper to build or buy?”, prospective homeowners need to weigh a variety of factors, especially those related to cost. Here are some factors that can make a big difference. Consider these points before deciding to buy or build.
Existing homes tend to be more expensive to maintain. “Older homes can be covered with materials that are less resistant to decay, such as old fiberboard cladding,” says Carroll. “Today, fascia and eaves are more likely to be made of concrete products, whereas older homes are often made of timber, which is prone to rot.”
You may have to take on neglected maintenance projects and upgrades that the previous owner avoided. You can also make stylistic changes to things based on the exterior, such as: B. Countertops, roofs, and interior accessories. These costs can add up quickly.
With newer homes, years of maintenance can be avoided, Asher points out, and many appliances and systems come with a period of warranty. “But owning a house is no different than owning a car,” Ascher said. “It needs upkeep, maintenance, insurance and all that.”
LandscapingMcKeel emphasizes the benefits of full customization and maintenance. “On the one hand, buying a home means you may already have plants and green space, but when you build a new home, you may affect the plants or features that are there,” McGill said.
She also points out that it is easier to add complex landscaping systems such as irrigation, water features, swimming pools and retaining walls when building a new home. “You can incorporate them into the mechanical or plumbing design of a home from the start,” she says—though those options are necessarily expensive.
Existing homes will often be less efficient depending on when they were built. “Any building built before the 2012 building code will be substantially less efficient than the current housing stock, as the 2009-2012 cycle of the International Housing Code produced some of the most dramatic energy changes in recent memory,” Carroll said. In this regard, building your own home pays off in the long run due to lower energy costs.
For older homes, Carroll says, appreciation depends on the maintenance of the home and neighboring homes in the development. “Homes that have not been maintained will likely still see some appreciation, though not nearly as much as a home that has been repaired and is under development and subject to current and mandatory homeowners association restrictions,” he says. New homes are typically valued at 100 percent per year Four to six percent.