With affordability being a top concern for many prospective homebuyers, those worried about a steep price tag might consider investing in a new build.
In California, homebuyers could save hundreds of thousands of dollars by building new rather than purchasing an existing property, according to a new LendingTree report.
It revealed that, though, on average, new homes cost more than existing ones across the country, a select few states offer new construction that is significantly more affordable than existing properties.
In California, newly constructed homes have a median price of $591,116, while existing homes cost $784,798—a difference of $193,682 more, according to LendingTree.
Using data from the National Association of Home Builders and the U.S. Census Bureau 2023 American Community Survey, LendingTree was able to estimate the household income needed for existing homes. Then, it compared the household income required to buy new homes and existing homes by state.
This trend is particularly relevant in today’s market, where shifting economic sentiment is beginning to shape buyer behavior.
“Many buyers, first-time buyers, or entry-level buyers, instead of just looking at single-family homes or existing homes, are looking at new homes put out by developers and builders,” Oscar Wei, deputy chief economist at the California Association of Realtors, tells Realtor.com®.
Overall, California’s median home price dipped to $899,560 in June, marking a second consecutive monthly decline and falling below $900,000 for the first time in three months, as per the California Association of Realtors June Home Sales report.
“The market is a little bit more balanced because we do have a bit more supply in the last few months,” he explains. “Buyers are thinking, ‘OK, well, now we have a little bit more inventory available.’ And even though mortgage rates have come down, we do still have some uncertainty.”
But the discrepancy between new- and existing-home values in California is the largest gap in the country, according to LendingTree. The state has struggled to keep up with housing demands for decades due to a combination of factors, including rapid population growth, high construction costs, restrictive zoning regulations, and lengthy permitting processes.
“I almost see two different Californias in terms of development,” Victor Currie, real estate agent at Douglas Elliman Real Estate, tells Realtor.com. “The Central Valley and Inland Empire are growth areas with lots of developable land, so prices are more reasonable, and new-home developers can sometimes offer slightly lower interest rates and other incentives to buyers than standard mortgage numbers.
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“But when people in other parts of the country think of California, they’re usually talking about Los Angeles, Orange County, the Bay Area, or San Diego, and there is a limit to how much new development can be done in the large metro areas.”
The L.A. County’s destructive wildfires also directly contributed to the housing shortage, forcing residents into an already competitive market and driving up rental and purchase prices in unaffected areas. Rebuilding in fire-prone areas is tough because of strict new building codes and regulations—increasing costs and potentially delaying reconstruction efforts.
However, the bump in inventory in other parts of the Golden State has balanced the market a bit, urging buyers to consider jumping back in, says Wei.
“There’s a little bit more supply from builders and developers. Builders and developers are actually willing to lower their price or provide incentives for buyers,” Wei explains.
Across the country, new homes cost a median of $537,791 while existing homes cost $391,210, according to the study. The average price difference is $146,581, with new homes being 37.5% more expensive than existing homes.
In Connecticut and Pennsylvania, new homes are more than double the cost of existing ones, according to the study. Specifically, new homes in Connecticut cost 125.9% (or $555,660) more on average than existing homes, with Pennsylvania close at 121.4% (or $361,637).
Potential pitfalls with new builds
Still, the roadblocks to building new homes keep inventory low. Expensive land, permit delays, local fees, high material costs, and labor shortages have limited new construction and increased the competition for existing homes.
“Now, here’s an issue that we might be seeing in the last couple of months, maybe even in the second half of the year. Builders and developers started realizing, ‘Wow, OK, it looks like we are seeing more existing homes coming onto the market.’ And now existing homes are competing with those newly constructed properties,” says Wei.
That competition, however, isn’t necessarily bad news for buyers—especially those looking to break into the market.
“Choosing a new build helps people achieve homeownership because it often helps clear the biggest obstacle most home buyers can’t get around: affordability,” Marco Smith, a real estate agent with The Maryland & Delaware Group, tells Realtor.com.
“Many builders are offering seller concessions to help cover the buyer’s closing costs and, in some cases, will pay down the buyer’s rate, making monthly payments more affordable. So, whether you’re looking to spend less upfront or spend less per month, builders can typically get that taken care of when you’re buying their new homes,” says Smith.
“As interest rates are higher than they were a few years ago and prices remain strong, many homebuyers are steering away from older homes that may need high-ticket items replaced in the near future. New construction offers the peace of mind that you won’t have a roof or HVAC replacement a few years after moving in. These homes also come with warranties,” he adds.
Prospective buyers who are considering a new build have a couple of solid options. California, Vermont, and Delaware are leading the list of states where new-home values are lowest.
Households in Vermont can expect to pay a median price of $352,739 for a new home, but would have to come up with $386,757 for an existing property—8.8%, or $34,018, more.
Delaware follows with the third-highest discrepancy between new- and existing-home values: $373,666 versus $406,266, an 8%, or $32,600, difference. Virginia, Maryland, and Utah households also pay more for existing homes than new-construction properties.
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