Should You Buy Resale, New Construction or Build in This Market?

Real Estate Agent with LoKation Real Estate

I have lived and worked in the Northern Colorado real estate market since 2008.  In that time I have seen drastic changes with the real estate market.  The intense market that came out of the housing crisis between 2008 and 2012, peaked in 2016 for sales.  We then saw the market start to normalize between 2017 and 2019.  This was marked by the Months Supply of Inventory (MSI) moving up to 2-3+ months and climbing (6 months is a balanced market).  While it was still considered a seller’s market, homes were staying on the market longer, price reductions were becoming more frequent and buyers had more negotiating power.  Also at this time, the cost of lumber was rather cheap compared to what we’re seeing today.  During that time, one could reasonably buy a home or have one built and it would have been a matter of preference and time frame more than it would have been a cost consideration. 

However, COVID-19 dramatically changed the market.  Interest rates were still low and inventory was tight.  Demand increased while supply decreased as fewer people were willing to sell during the pandemic.  We saw MSI go from over 3 months down below 1 month in a short span of time.  New construction communities were raising their prices due to supply chain issues, passing on the cost of increased prices for materials to the homebuyer.  There were even waiting lists to buy homes in new construction communities.  In fact, some of these communities would have a prospective homebuyer sign a reservation for a home with the knowledge that the price might increase due to any increase in the cost of materials while they were waiting for the home to be built.  To put these increases in perspective,  the National Association of Home Builders reported that lumber prices went up 200% as of June 2021 when lumber prices were at their highest (When will high lumber prices amid COVID come down? | Charlotte Observer).  While lumber prices have come down some, they are not what they were prior to the pandemic. 

The cost of materials has gone up, not only because of supply issues but also because of inflation.  This results in a higher cost to acquire products and materials but also an increase in the cost of labor.  Contractors are charging more per hour and are often over-bidding on jobs because there is a likelihood someone will pay them to get the work done.  There is no shortage of work for contractors so they can afford to pick and choose their jobs.  This puts the consumer that wants to build a custom home in a costly position.  Due to these constraints, I don’t recommend that one should build a home at this time.  The only ones that can still benefit from building their own home are contractors that do much of the work themselves.  I have one friend who is in the process of this now.  However, even they ran into some issues with getting sub-contractors to show up and meeting deadlines for their construction loan. 

In recent months, we saw a significant increase in mortgage interest rates, from around 3% earlier this year to over 7.2% in recent weeks.  This made the cost of buying any home much more expensive and even impossible for some.  Many buyers are waiting on the sidelines until rates go down.  However, home builders, who once had command of the market with buyers waiting in line to buy their homes, are now desperate to sell their inventory.  As such, they offer great incentives for buyers.  They are offering to pay down their mortgage interest rate by two or three points.  One local builder is offering to pay down the mortgage rate to 3.99% for the first year.  Many local builders are incrementally lowering prices on their inventory in addition to rate buydowns.  This is a far cry from just over 6 months ago when they were raising prices on a regular basis and offering little to no incentives to buyers.  We are also seeing price reductions in the resale market as well.  Some sellers are also willing to offer financial concessions to pay down the mortgage rate for prospective buyers just to get their home sold.  However, I think the best bang for your buck is to buy a home in a new construction community.  Again, builders are reducing prices and paying down mortgage interest rates more significantly than the resale market.  An added benefit is that you’re getting a brand-new home. 

In summary, due to the increased cost for labor and materials, I don’t recommend that one should build a custom home right now.  However, we are seeing price reductions across the board with some sellers offering concessions to pay down mortgage interest rates for buyers.  This can make a home more affordable to many buyers.  The best deals to be had, in my opinion, are those in the new construction communities.  In addition to price reductions, they have deeper pockets that affords them the ability to offer more significant financial concessions to pay down a homebuyer’s mortgage interest rate.   

About the author: Sean Gilliam is a real estate agent with LoKation Real Estate in Northern Colorado.  Sean can be reached at or by phone at 970-313-6706.  For additional content see Sean’s Youtube channel or to search for properties see his web page.

Interested in buying a home or selling your current home?  I am committed to your success.  Give me a call at 970-313-6706 to get started.

Comments (1)

Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Jan 11, 2023 03:39 AM