When Interest Rates are High, Should You Build or Buy?

With rising mortgage rates, deciding whether to build or buy a home is becoming much more challenging than in the past decade. According to Freddy Mac, the current interest rate on a 30-year mortgage as of June 2024 is 6.87%, a slight decrease from the 7.02% recorded in May 2024. While rates are still high, they don’t make your dream of being a homeowner impossible. Whether you’re a first-time home buyer or looking to upgrade, this guide will help you make the best choice based on the current market and weigh the advantages and disadvantages of both options.

About the Current Market

According to the National Association of Realtors (NAR), the latest housing indicators show:

• Existing home sales in May were at 4.11 million units (seasonally adjusted annual rate)
• The median home price was $419,300
• Housing starts in May were at 1,277,000 units
• New home sales in April were at 634,000 units

These figures indicate a market that is still active but facing headwinds due to elevated interest rates.

Pros & Cons of Building Right Now

Pros

1. 1. Design Your Dream Home: Building a new home allows you to bring your vision to life, crafting a home that perfectly matches your lifestyle and preferences.
   2. Cutting-Edge Energy Efficiency: Newer homes, especially those built by eco-friendly home builders like Brite Homes, incorporate energy-efficient technologies such as renewable energy sources, energy storage and monitoring systems to minimize your environmental impact by helping to reduce dependence on non-renewable energy sources and carbon dioxide and other greenhouse gas emissions, leading to potential long-term savings on energy bills.
   3. Wider Market Appeal: Your home is an investment, and if you decide to sell in the future, buyers prefer newer homes.
   4. Lower Maintenance Costs: With everything new, you are less likely to stress out over costly repairs or replacements.

Cons

1. 1. The Waiting: According to a 2023 U.S. Census Bureau report, the duration of constructing a house can range from three to thirteen months, with the process often leaning towards the longer end of this range. Adhering to this timeline helps ensure your safety and optimal comfort by providing proper installation of insulation, HVAC systems and other amenities.
   2. Hidden Fees: In addition to the typical housing costs, some hidden fees, such as special upgrades, building fees, land prep, moving costs, appliances and closing costs, are also included, easily blindsiding home builders. Budgeting for these hidden fees is important, which are often not included in the contractual agreement.
   3. More Decisions: Dealing with the stress of building a home can be taxing, especially if you are balancing work and family life. Starting from scratch lets you creatively shape your home to your liking, but having many options can lead to decision fatigue.

Pros & Cons of Buying Right Now

Pros

1. 1. Less Waiting: According to Rocket Mortgage, buying the perfect home can take between six months to a year. This time frame allows for thorough research, property viewings, securing financing, receiving approval letters and application processes.
   2. Price Negotiation: Buyers can save significantly by negotiating prices. Quicken Loans advises that during a buyer’s market, offer 20% below the original price; otherwise, consider asking for a discount ranging from 1% to 10% off the initial offer.
   3. More Location Choices: Not every location has the space available for new builds. If you have your heart set on an established neighborhood, buying an existing home may be your only option.
   4. Lower Initial Costs: The National Association of Home Builders recorded that the average cost to build a new house in 2022 was around $644,750, whereas the Federal Reserve Bank of St. Louis reported that home buyers spent an average of $535,500, potentially saving buyers around $100,000.

Cons

1. 1. Compromising: Most pre-built homes won’t check all of your boxes, so you’ll have to make certain compromises depending on availability, such as location, smaller bedrooms or closets, etc.
   2. Hidden Health and Environmental Concerns: Many older homes may have underlying problems that are not apparent even to home inspectors. Homes built during the 1970s are known to be contaminated with asbestos and lead, potentially causing respiratory issues and drinking water and air contamination. Despite this, it’s still wise to inspect your home before purchasing it, as it can catch important details. To avoid these issues, opt for newer homes with modern technology.
   3. More Expensive to Insure: Pre-built and older homes tend to be more expensive to insure due to the higher likelihood of major repairs, outdated plumbing susceptible to leaks and blockages and older electrical wiring being at a higher risk of fire.

How to Choose Building or Buying

1. 1. Assess Your Timeline and Budget: Consider your needs and long-term financial goals.
   2. Evaluate Local Housing Market: Research price trends and market conditions in your desired area(s). The National Association of Realtors offers national, regional and metro-market housing statistics to help you understand the market in your desired location.
   3. Consider Energy Efficiency: Building a new home with an energy-efficient company like Brite Homes could save you $3,200 annually on taxes.
   4. Analyze affordability: Various online resources, such as Mortgage Calculator, can help you calculate your potential mortgage payments and offer different loaning options. 
      Dave Ramsey recommends using the 25% rule—which is not to spend more than 25% of your monthly income (after taxes) on monthly mortgage payments.
   5. Consult with professionals: Talk to real estate agents, financial advisors and builders to get advice that’s right for you.

Build and Buy Brighter With Brite Homes

As you decide whether to buy or build your dream home, consider an option that combines luxury, affordability and modern, energy-efficient technology to reap the financial benefits of long-term savings without sacrificing your comfort.

By choosing Brite Homes, you’re choosing to invest in a lifestyle you can enjoy for years to come. If you’re ready to take a step closer to a brighter future, view our homes to find the perfect place to start your new journey