This is a buyers market! Prices have not been this low in years, mortgage rates are at a 20 year low and the choices are many with inventory high. So why is the cost of New Construction still so high?
I get asked this question on a daily basis. There are many factors that go into the price of a new home. The first and most important factor is the land cost. Builders and developers have purchased the land in many cases more than 1 year ago, but most likely 2-3 years before a project has been approved. This cost is fixed as the builders bought land when prices were still high.
Material costs have also skyrocketed. The cost of shipping had increased when the gas costs were so high....but now that the cost of gas has come down, the shipping fees have not! The materials costs have come down recently, but this has no impact on a home that has already been built. Subcontractor's are more available today, however quality sub-contractors can not afford to cut their labor cost. Keep in mind that overhead such as health insurance, worker comp, liability, etc ave increased so if these contractors want to stay in business they need to get paid a fair rate.
In order for the cost of new construction to come down, we need to see land cost come down. If a builder is paying $250,000 for an approved building lot in Glastonbury, CT then they can not put a 2200 sq ft home on the land. It will never appraise at a price high enough for a builder to profit. This is the reason why we have seen such big homes built with high price tags!
Hopefully we will see the land cost come down, smaller homes being built that are more affordable in this ever changing real estate market.
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