With high home prices and still rising mortgage rates, finding an affordable house can be a challenge. But when it comes to looking for a home, buyers first have to make a decision – buy an existing home or a newly-constructed one being sold by a builder?
Existing homes are normally less expensive than new ones, but there could be some advantages to a newly-built home, other than the fact that everything in the house is new. To sell their homes, builders are increasingly offering incentives, including buying down the mortgage rate.
While the average 30-year fixed-rate mortgage is now around 6.75%, some home builders are offering rates as low as 5%, making the monthly payment more affordable. And the number of builders doing this appears to be growing.
New home sales in November reached a seasonally adjusted annualized rate of 740,636, marking a 15.7% increase from the previous year and a 17.0% rise from 2019 levels. Ali Wolf, chief economist at Zonda, which tracks U.S. home construction, emphasized the role of incentives in driving these sales, particularly for larger builders.
"Our data captured that 75% of all new home projects were offering some kind of incentive on quick move-in supply," Wolf said. "The important difference seen in November, though, was a lift in consumer confidence. The election was over – it was time to move on."
Other incentives
Mortgage rate buydowns are just one incentive builders may offer. Some are offering assistance with closing costs by covering some or all of the closing costs associated with purchasing a new home.
Builders may also offer appliance or fixture upgrades and provide buyers with credits that can be used for home design upgrades, allowing them to customize their new homes to their preferences.
In addition to the rise in new home sales, rthe latest existing home sales report from the National Association of Realtors showed a sharp increase in November sales. The median home sale prices also continued to rise, perhaps sending a signal to buyers that waiting for lower prices and mortgage rates may be costly.