While builders are starting to increase their volume of new homes, a recent article in Consumer Affairs stated that new homes are still out of reach for most first-time homebuyers simply because of their prices.
Prices for both existing and new homes have been steadily rising in recent months because the demand for houses, driven primarily by first-time homebuyers, is greater than the inventory. However, even with more new construction, there is an affordability issue.
How Much Do New Homes Cost?
The median sales price for a new home in July was $313,700, up more than $2,000 since June and up $18,000 from last July, according to monthly statistics from the U.S. Census Bureau and HUD. New home prices are reportedly high due to higher costs for land, labor, and materials, and more expensive homes also yield higher profit margins to builders and investors.
So how affordable are these new homes to the first-time buyer? According to Consumer Affairs, even if a first-time homebuyer gets a really good interest rate of 3.5% on a home that’s around $300,000, they would need approximately $11,000 for their mortgage down payment.
Research shows the average first-time homebuyer is 32-years old, makes $72,000 a year, and paid a little over $180,000 for their homes. A home closer to $300,000 would likely be out of their reach.
Increasing Demand for Existing Homes
Since most new homes are out of the first-time homebuyers’ price range, and since most of the demand for housing right now is from first-timers, this puts even greater demand on the market for existing homes, which in turn raises their prices.
In fact, the median price for an existing home has risen by 6% from a year ago to $258,300, primarily because of the increased demand.
Until more affordable housing is available, it looks like the trend of rising home prices will continue for a while. A recent report from CoreLogic predicted home prices are expected to continue to rise, by another 5% by July of 2018.
Champion Title & Settlements
We work with realtors, lenders, and developers in Washington, D.C., Virginia and Maryland. We provide title insurance, title searches, as well as a full range of settlement services for purchases, refinances, and commercial real estate transactions. For more information, please contact us today.