Here's Why New Homes Won't Get Cheaper, Even Though Lumber Prices Are Down

You probably won't be the one who reaps savings on this change.

The coronavirus pandemic caused a number of key supply chains to be disrupted. Lumber was one of them, and a shortage earlier in the year caused the price of this important building material to soar.

The result? Buyers of new construction have been paying a lot more to purchase homes. In fact, new construction home costs rose by about $36,000, on average, in the spring.

Lumber prices have since come down, though, which you'd think would be good news for buyers. After all, with the cost of lumber declining, builders can now spend less to construct homes and pass that savings on to buyers.

There's just one problem -- they're not passing those savings along. Rather, home builders say they expect to simply enjoy higher profit margins in the near term, according to Realtor.com.

Given that low mortgage rates are fueling a surge in buyer demand, that's probably something they can get away with. Right now, housing inventory is sitting at roughly a 2.6-month supply. That's well below the 4- to 5-month supply needed for an equalized housing market where neither buyers or sellers have an advantage.

Since the supply of existing homes is low, many buyers are turning to new construction as an alternative. And unfortunately, it looks like they won't be reaping any savings on their new builds anytime soon.

Should you buy new construction today?

If you purchase a newly built home today, you might pay a lot more than you normally would. That said, home prices are inflated on a national level. So just as you'll likely pay more for new construction, so too would you pay more for a home that already exists.

That said, new construction has some distinct benefits:

• You can customize certain features of your home.
• You get to move into a home in pristine condition.
• You might avoid costly repairs for at least the first year, if not beyond. (It's common to get a builders warranty covering repairs for at least a year.)
• You won't have to replace major appliances for many years (since household appliances typically come with multiyear warranties when they're installed.)

On the other hand, there are some drawbacks to buying new construction aside from its cost:

• There might be delays in the construction process. (You may have to find temporary housing if your home isn't ready when your builders first said it would be.)
• You may need to make a higher down payment. (Many mortgage lenders require 20% down for a new construction home, while you can often put down less for an existing home.)

Ultimately, you'll need to weigh the pros and cons to see if buying new construction is a good bet today. If you can reconcile the higher price, it may be a worthwhile move to make, especially if you've been struggling to find an existing home you like. Just don't expect to reap any savings, even with lumber costing a lot less today than it did several months ago.