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6 BuildersOutlook 2024Issue7
What Buyers Expect to Pay vs . Actual Home Prices
There is a major gap between buyers ’ expectations and home prices , according to recent surveys from NAHB and the U . S . Census Bureau .
While 38 % of buyers expect to pay less than $ 250,000 for their next home , only 5 % of homes that started construction in 2023 are actually priced under $ 250,000 .
In contrast , the share of new homes being built that sell for above $ 250,000 is often far greater than the share of buyers seeking homes in that price range .
For new homes priced below $ 250,000 , the red bars are longer than the blue bars , indicating that the share of prospective and recent buyers exceeds the share of new homes being built in those price ranges . Above $ 250,000 , the opposite is true . The blue bars are longer than the red bars , indicating that the share of homes being built exceeds the share of buyers in the market at those prices .
While existing homes in the starter market have traditionally consisted of the bulk of sales for buyers with modest incomes , the supply of homes in the resale market have been running at historically low levels for several years and prices of existing homes have been setting record highs . Indeed , the median price of an existing home in May was well over $ 400,000 . A major part of the reason for this limited existing inventory is due to the interest rate “ lock-in effect ,” where home owners are reluctant to sell their home because their current mortgage rate is well below market rates .
Another large part of the explanation for the actual versus expected price mismatch is the cost of new home construction . Residential construction wages continue to rise . Although prices of many residential building materials have been stable recently , the stability comes after massive increases in the two years following the onset of the COVID pandemic . A shortage of lots has been a chronic issue since the home building industry started to recover from the Great Recession . Moreover , regulatory costs can be substantial . NAHB ’ s latest study on the topic shows regulation accounting for $ 93,870 of the cost of an average new single-family home . The largest regulatory cost impact , $ 24,414 , comes from changes to building codes over the past 10 years . This is followed by $ 12,184 in fees paid by the builder after purchasing the lot , $ 11,791 in regulatory costs incurred by the developer during site work , $ 10,854 in the value of land that must be purchased and dedicated to the government or otherwise left unbuilt , and $ 10,794 in required architectural details that exceed what the builder would ordinarily do .