Buy or build a house: which is cheaper? | Cost comparison 2023 (2023)

Should you build or buy a house?

As home price inflation continues to rise, many potential homebuyers are considering alternatives such as B. Building your own home from scratch rather than buying an existing one.

But that begs the question: Is it cheaper to build a house or buy one?

If you compare average construction prices to average purchase prices, building your own home is often more expensive. But there are so many variables that this is far from true in all cases.

Wondering whether to build or buy in 2023? You should know this.

In this article (Go to...)

• Build instead of buy
• average construction costs
• average acquisition cost
• new vs existing house
• today's market

Is it cheaper to build or buy a house?

It is generally cheaper to buy a house than to build one. On average, building a new home costs $34,000 more than buying an existing home.

The average cost of new construction in May 2022 was $449,000. For comparison, the average cost of buying an existing home was $414,200, according to the latest data available from theNational Association of Builders(NAHB) and the US Census Bureau.

• Average cost of building a house:449.000 $
• Average cost to buy a house:414.200 $

The cost of building a new home includes land purchase, excavation, permits, inspections and other related costs.

However, the data show a significant cost reduction for those who can already build a lot. a separationNAHB-Studie, from 2019, estimates the purchase price of land at 18.5% of the total cost of new construction. This brings the cost of building a home down to around $365,935 for someone who already owns a lot.

So what is the right choice? This depends on many factors, such as B. Your needs, location, schedule, local housing stock, and availability and pricing of materials and labor.

Let's examine these factors in a little more detail so you can weigh the costs and benefits of building versus buying.

Average cost of building a house

The NAHB has estimated the average cost of building a home in May 2022 to be $449,000. This includes the cost of purchasing the land.

Including the land purchase, the difference between the average construction price and the purchase price is 8%. And it can be significantly more expensive to build depending on location, designs, and material and labor costs.

What affects the cost of building a house

First, there are construction costs. Not only can this vary greatly depending on the home builder, but also depending on the cost of materials and when you want to build.

You can build a basic home for about $150 per square foot of floor space. But it's easy to spend $500 per square foot or more when you want the best of everything.

If you have the time and skills to do some of the construction work yourself, the savings can be huge. Just don't try to do work that is beyond your capabilities. Independent inspections are carried out and the home must be mortgageable to have a reasonable resale value.

Then there's the location.

HomeAdvisorreports that construction in Alaska can cost more than twice as much as in Kansas. And costs in all other states fluctuate between these two extremes.

Other construction costs to consider

Other variables in the construction process are:

• Location costs:Builders have a variety of land charges, including building permits, water and sewer inspections, and architectural and engineering plans, to name a few.
• Base:A new home with a basement adds to the total cost. But even without one, you still pay for the excavation, foundation, concrete, and retaining walls.
• Exterior structure and finishes:Not only does this cost vary based on the square footage of the home and your floor plan, but you must also calculate the price of building materials and labor costs (as the general contractor and any subcontractors do).
• Main home systems:This includes plumbing, electrical, and HVAC. Again, there are labor costs for plumbers and electricians.
• Interior:Don't forget the floors, drywall, countertops, appliances and other amenities of your custom home
• Plot:Landscaping, external structures, decks, driveways and cleaning costs

You can build a basic home for about $150 per square foot of floor space. But it's easy to spend $500 a square foot when you want the best of everything.

And, no doubt, you can easily break that top number if you decide to import acres of Calacatta-Carrara marble from Italy for your 5,000-square-foot home.

Plan for cost overruns

Of course, some construction projects are completed on time and within budget. But it is very common for both to overflow. So plan on a 5% or 10% refund to cover unexpected construction costs. Especially if you're the type of person who's easily tempted to overspend when faced with a plethora of options.

Financing a new building

Another variable is your financing plan. Some people take out a mortgage to buy land and then use their savings or aBaudar firstto finance the project.

But when the work is done, you often have to refinance the mortgage to pay the bank or increase your savings. And that means two types of closing costs: one for the original home loan and one for the refinance.

Home loans often have higher interest rates than traditional mortgages. In addition, there are strict rules about the construction schedule and resource disbursements.

An alternative is to take out a permanent construction loan. With one of these, you get a one-time loan to buy the land and build the house. Money is released when you reach predefined construction milestones.

For more information, see:Financial Steps to Building a Home: The Complete Guide

Average cost of buying a home

As of May 2022, the average selling price for an existing home was $414,200, according to the NAHB and the US Census Bureau.

But just as construction costs vary from state to state, so do real estate prices. In fact, there can be wide variations within states, depending on city, county, and neighborhood.

For example, buy a home in Ilion, New York, and you can expect the cost of housing to be about 800% below the national average. But buy one in Chelsea, New York, and you can expect to pay a hefty price. HeMedianAccording to the information, the asking price there in April 2022 was an astronomical 2 million US dollars.Immobilienmakler.com.

house price inflation

There is one more component to your decision-making process. How fast are prices on homes you want to buy or build rising?

In June 2022,CoreLogicNamereported that home sales prices across the country “increased 20.9% year-over-year in April 2022 compared to April 2021.” This is an annualized number, meaning that home prices in April 2022 were 20.9% higher than the previous 12 months. Furthermore, no state has reported an annual decline in home values.

This is also a national average. If you are buying for the first time, the prices of the houses you intend to live in may have risen more smoothly. But it is very likely that they shot even higher.

For example, if you're looking to shop in Arizona, Florida or Tennessee, CoreLogic says that prices in all three states have increased by over 27% in that 12-month period. This can affect your decision to build or buy your home.

consider your schedule

Should you be using some of your pay savings to buy a pack right now? Then you can sit on it until you can start building your dream home. That way you would have at least some of your housing costs under control. In fact, it could be argued that you have one foot on the bottom rung of the domestic ladder.

Therefore, to really answer the question of whether it is cheaper to build or buy a house, you need to do a lot of homework.

In fact, you can't be completely sure until you find the property you want, get estimates from contractors, and compare those costs to similar existing homes in the neighborhood.

Buying a new home versus an existing home

There is one more possibility. And that means buying a new built house, a new house that was just built, but you didn't build it yourself. This strategy also has advantages and disadvantages.

2017,Truliaestimated that buyers pay a premium of about 28% when buying a new home.

So it might cost $512,000 to buy a new home comparable to an existing $400,000 home ($400,000 + 28% = $512,000).

Trulia's article was headlined, "What You're Paying For That New Home Perfume." And it's true, the smell is delicious, as well as the prestige that a new house brings. Even better, it will likely have the very latest in everything: technologies, finishes, construction techniques, and more.

House warranties and other savings

There are also solid financial benefits to owning a new home. For example, you are much less likely to face unexpected upgrades and costly renovations.

If you do, these repairs may be covered under your manufacturer's warranty.NOLO, a legitimate website, suggests that such guarantees generally provide the following protections:

• One year of labor and material
• Two years for mechanical defects (air conditioning, electrical, heating and ventilation systems, and plumbing)
• Ten years for construction defects on the house

Of course, if you hire general contractors to build your new home, you'll need to negotiate warranties with them.

Therefore, you can save on home repairs by purchasing a new one. But there may be other financial benefits. It usually has better insulation than an older home and may have more energy efficient systems and appliances. And it should all add up to lower electricity bills and help you do your bit for the planet.

It's true that it's hard to put dollar values ​​on your potential savings. But you need to consider them when deciding whether it is more expensive to buy or build your own home.

Is it cheaper to buy or build a house in today's market?

So far, we've looked at the general principles of buy-vs-build competition. But what are the differences between the current economy and the real estate market?

This article was written when global forces such as supply chain issues and inflation were pushing up construction costs and making forecasting even more difficult than usual. But here are some factors that could change your mind about whether you should build or buy a home in 2023 and beyond:

• mangle file: There are few apartments available to meet the demand. That probably won't change for years, because the only way out is more housing construction. It can take years or more than a decade to build enough
• Lack of manpower to build: 2021 and 2022 were unusual employment years. Some older Americans have taken early retirement, and a record number of young people have left their jobs to start their own businesses. Thus, the construction industry had a hard time getting a foothold on the land and paying higher wages to attract workers.
• continuous material costs: The Covid-19 pandemic has caused ongoing supply chain issues, leading to shortages of many products, including building materials. Take wood as an example. According toNAHB, "Extremely volatile lumber prices over the past year have caused the median price of a new single-family home to increase by more than $18,600." Will building material prices continue to fall or rise in the near future? only time can tell

There are also challenges to consider in the existing real estate market.

buyer competition

Inventory shortages have made homebuyers compete with each other, with many sellers receiving multiple offers above the list price.

Cash buyers are generally given priority in this market. Your offers are not linked to funding. And they are treated as a safe bet, while those in need of mortgages may be seen as riskier. This is usually true even if they have taken out mortgage loans.pre-testedof your creditors.

In areas where the real estate market is particularly active, some homebuyers have seen several, sometimes dozens, of rejected offers. You can't blame many for being unmotivated.

You may be reading this because you are one of them and you are now thinking about building your own house because until now it was impossible to buy one.

This could very well be a smart move. But don't expect an easy ride. Upfront building materials costs can hit you hard (especially with pandemic-related price increases and supply chain issues). Depending on where you live, it can be just as difficult to attract labor as the big developers.

Increased home values ​​for existing homes

Rising house prices are great for existing homeowners. In June 2022,CoreLogicNamereported an average annual capital gain of $64,000 per borrower between the first quarters of 2022 and 2021. This represents a 32% year-over-year increase.

In other words, the average homeowner's wealth increased by $64,000 in a single year without lifting a finger. What's not to like?

Well, a lot if you are a first time buyer or someone who has sold their home and can't find a new one. Because your purchasing power is decreasing steadily and rapidly.

The good news for these buyers is that many expect home prices to rise.drop dramatically in 2022. So while property values ​​are set to continue rising, if the experts are right, the worst of the skyrocketing prices may be behind us.

Conclusion: build vs. buy a house

So is it better to build or buy a house? You are now much better informed on the subject than you were at the beginning of this article. But you probably won't be much closer to a decision.

This is because of all the property variables we mentioned earlier, including:

1. Construction costs where you want to build, including potential labor shortages and material price increases.
2. Evolution of property prices in the area where you want to live
3. The size and specs of the house you want
4. If you have the skills and time to do some of the work yourself
5. If you are willing to live in temporary accommodation during the construction phase
6. The type of mortgage you choose

Unfortunately, there is no definitive answer to the initial question: is it cheaper to build or buy a house? The only way to find out is to look at the numbers in your own situation.

If you know a local real estate agent and builder, they can model construction costs for a fictitious purchase and construction project, then compare to see which is cheaper.

But if not, you'll likely need to find a package and get quotes from contractors. Then you can compare the cost of the home you could build with buying a similar home. Only with these can you make your final choice.