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Older Homes VS New Homes

For a society that likes shiny new things, the latest research in housing reveals a long-term trend – homebuyers choosing older homes over new construction. 

Why? People are often wowed when they go into a builder’s model and see how beautiful it is. It has the latest bells and whistles, but once homebuyers see how much it costs to get everything they want, older homes start to look much more attractive.   

The prices and operating costs between older and new homes can vary widely. According to Census.gov, the median sales price of new homes in July 2021 was $390,500 while the average sales price was $446,000. New homes are at a 6.2-month supply, a normal rather than an overheated market. The seasonally-adjusted annual rate of homes was 708,000. For the same period, existing homes, also known as older homes, sold for a median of $359,900, according to the National Association of REALTORS. The existing home supply was at a blisteringly low 2.6 months with a seasonally adjusted annual rate of 5.99 million units sold. 

So, what do older homes have to offer? Here’re a few ideas:  

Retro charm

Whether you prefer sleek mid-century modern or the fairytale charm of an English Tudor, older homes have personalities and features that aren’t available in today’s homes, such as the amount of wood detail found in Craftsman homes or the lovely porches and gables of Victorian homes. You can bring attention to these irreplaceable features and update your older home a little at a time with all the modern conveniences, instead of paying a big mortgage to have everything you want at once.  

More inventory available

Since the Great Recession, builders have underperformed historical numbers, even while immigration and other areas of population growth continued to grow. Loans were more challenging to get, so many builders turned to remodeling to ride out the economic storm. Meanwhile, lumber prices and other building materials have risen so much that it’s impossible for builders to make a profit on starter homes, so they’re building multi-family projects and high-end luxury homes instead. Builders have yet to reach pre-recession levels of production.   

Stricter financing

A new home with a higher price tag may be harder to finance. Stricter lending requirements mean that borrowers have to stay within traditional guidelines of affordability, including down payments and debt to income ratios. An affordable home should not take more than approximately 30% of household gross income to cover mortgage notes, taxes and insurance.  

Higher building costs

According to a report in Fortune.com, lumber production is at a 13-year high, yet prices rose 288% between June 2020 and April 2021. In May 2021, lumber hit an all-time high of  $1,670.50 per thousand board feet reported CNBC.com, while steel mill products jumped 70% in price in the first few months of 2021. Quora.com points out that for every $10,000 increase in the price of a home, the average mortgage increases by about 51%.   

Commutes more expensive

Most new homes are built where land costs are cheaper, well outside the inner city. The Department of Energy expects commuters to pay hundreds of dollars more annually in gasoline costs to live in the suburbs. The cost of commuting could make older homes in the inner city, walking communities, and homes near public transportation more attractive to homebuyers.   

Where new homes beat older homes

New homes offer the allure of first ownership, and often reflect your choices in countertops, flooring and paint colors. There’s no remodeling to do; it’s how you want it, and everything is under warranty. Depending on the area and age of updates, insurance may cost less for an older home.  

Because it’s easier to build green than to retrofit, new homes have the advantage over older homes when it comes to energy efficiency. New homes are built with insulated windows, and many come with “smart” Energy-Star-rated appliances, heating and cooling systems. 

Whether you choose an existing or new home, one thing is certain- you really can’t go wrong either way.  In an inflationary environment, buying a home is one of the best hedges against rising rents and higher building costs down the road.