COMMENTARY | Even though the housing market bottomed in my Florida neighborhood more than a year ago, the cost of new construction has continued to skyrocket. I personally am a fan of new homes, but I just don't like the price tag associated with them. I am wondering whether the new housing boom will simply create a second housing crash.
According to a recent article by Reuters, new home sales accelerated recently to the fastest pace in 2 ½ years. Some experts see that as a sign that the housing market in the United States is finally recovering. But if people purchase new homes they can't afford, we could see a new wave of foreclosures down the road.
Buying new when younger
I felt that I made the right decision by buying new when I was in my 30s. However, now that I'm 40, I wouldn't purchase a new construction home. My first townhome, which I bought 10 years ago, cost me about $103,000. I was able to pick out all of the appliances, paint colors, cabinetry and other features. My husband and I purchased our single-family home about 7 years ago for $183,000. Because we purchased a new home, we won't have to worry about making major repairs. By the time our home is paid off, our home will only be 15 to 20 years old, depending how quickly we pay down our mortgage. If we had purchased an older home, we would have to make repairs while making house payments.
Watching home prices climb
I noticed homebuyers in Florida pay a premium for buying a new construction home. Since we purchased our home during the housing bubble, it's possible to find homes similar to ours that are selling for $50,000 less than the amount we paid. However, if we were to want to buy a new construction home that is identical to our house, we would have to pay $50,000 more than we paid 7 years ago. While the price of resale homes has gradually declined, the cost of new construction homes only goes higher.
Choosing the right price range
One of the things we did right when purchasing our new home was picking the right price range. We were approved to buy a home for $350,000, but we knew we couldn't truly afford a home that expensive. I think housing is less likely to crash again if new homebuyers are more conservative about what they can afford. We only bought a home that we could afford on one income even though we are a dual-income family.
Resisting the urge to climb
I think another mistake homeowners make is climbing the housing ladder by constantly moving from one home to one that they perceive as better. Because we purchased a new home, we felt as though it was a blank canvas for us to decorate or arrange. One of my close friends has to move every two years because she gets bored with her surroundings. She sat down one day to figure out how much money she wasted on moving costs and closing costs. She didn't come ahead by selling one home and purchasing another over and over. Instead, she estimates she lost about $200,000 in 15 years by trying to impress her friends and neighbors.
Even though new home prices are out of my reach, I am happy to see that new home building is bringing back construction jobs. A boost in construction should help the overall economy, especially in Florida.
New homes are still a good deal for young people. Newer homes are more energy efficient, which helps people save on utility costs. It's also just more enjoyable to start with a brand new home that no one else has defiled with their shag carpet or avocado green paint colors.
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