New Home Construction Increased in July -- but Should You Buy a Just-Built Home?

There's a reason buyers have struggled so much to purchase a home this year -- and it's not just the high cost of signing a mortgage. Housing inventory has been sluggish on the heels of elevated mortgage rates. And until mortgage lenders start to lower those rates significantly, we could get stuck in a holding pattern.

One thing that can help the problem of low housing inventory is an uptick in new home construction. And in July, new construction activity rose 3.9% compared to June. On an annual basis, it was up 5.9%.

To be clear, just because new construction picked up this summer quite a bit doesn't mean those homes will be available for purchase anytime soon. It takes time to build a home, and to get the right permits and inspections. So all told, July's uptick in new home construction may not start to benefit buyers until early 2024.

But at that point, you may find yourself looking at a newly built home. And you may be tempted to make an offer on one, despite the higher cost compared to a comparable home that's already been lived in. But while there can be benefits to buying new construction, there can also be some major drawbacks.

When your home is in perfect condition

A home that's been lived in before is apt to have its share of dings and scratches. One big benefit of buying new construction is that you're getting a home in pristine condition.

Not only that, but you're generally guaranteed to get a home that doesn't have any major issues lurking. If those issues were to exist, the home wouldn't be able to pass the necessary inspections needed to put it on the market.

In fact, it's common for new construction homes to come with a one-year builder's warranty that protects you in the event of workmanship issues. And if your home is loaded with newly purchased appliances, those will generally have their own warranties, too. So all told, you may not have to sink a lot of money into repairs during your first few years in your home.

But there's a downside

The idea of buying a home in perfect condition might seem nice. But aside from the added cost of new construction, one thing you should realize is that builders commonly use lower-cost and lower-quality materials when putting new homes together. So while you may not encounter repair issues with your new home the first year or two of living there, over time, things might start to wear down on you more quickly due to them being inferior in quality.

For example, your home might come with a brand-new fridge that comes with its own three-year warranty. But that fridge might also stop running after five years due to it being lower in quality, whereas a better fridge might last a decade or longer. So not only are you generally looking at paying more for new construction, but often, you're paying more for sub-par materials, fixtures, and appliances.

Is new construction right for you?

You may decide that you're going to make an offer on a newly built home. But before you do, get all the right information.

Ask for a list of the appliances the home has and for details on the materials used in the course of construction. And also, try to negotiate your builders warranty from one year to two in case issues pop up after the 12-month mark.

You may also want to pay for a home inspection of your own just to make sure there aren't any obvious immediate issues with workmanship. Often, buyers of new construction skip this step since inspections have to take place for the home to be listable. But spending a few hundred dollars on a second opinion could save you money if an issue is identified and addressed before you take ownership of the home.

New construction could be just the thing that helps solve the current housing inventory problem. But that doesn't mean you should rush into buying a home that's newly built without doing your research first.