THE BASIS POINT

Newly built home prices $438,200 in March 2023. Can you afford this?

 
 

640k new homes sold in February 2023 at median price of $438,200. Can you afford this 2023 new home price? - The Basis Point

The latest Census/HUD report shows 640,000 new homes sold in February, up 1.1% from January but down 19.0% from February 2022. More important to you as a buyer is that median 2023 new home prices (blue line in first chart above) are $438,200.

Current new home prices of $438,200 are down $58,600 from the October 2022 peak of $496,800. But this price is up $11,700 from January’s price of $426,500.

Can you afford this? Let’s take a look. But first, some notes about builders and new home prices you should know.

HOW TO NEGOTIATE WITH BUILDERS

Last week, builders reported better than anticipated new home sales in the past 2 months.

Why? Price incentives and discounts. National Association of Homebuilders (NAHB) chief economist Robert Dietz notes:

– 31% of builders reduced home prices in March (also 31% in Feb)

– 58% of builders offered some type of incentive in March (was 57% in Feb)

These incentives are things like seller credits at closing and home upgrades.

So you can make deals with builders, but if rates drop (more on this below), builders may negotiate less.

Also, builder confidence (as measured by NAHB) has grown the last 3 months, and they’ll offer you fewer incentives if this continues.

2023 NEW HOME PRICES & AFFORDABILITY

– New home sales account for about 13% of total home sales, and existing home sales are 87%.

– So what’s the difference in qualifying for a new home vs. an existing home?

– Let’s first look at new home affordability using the median new home price of $438,200.

– Monthly all-in cost on a $438,200 home purchase with 5% down and today’s rates of 6.5% would be $3456 (mortgage payment, insurance, taxes, mortgage insurance).

– If you had no other monthly debt, you’d need to make $96k* per year to qualify for this.

– If you had $600 in credit card, auto, and other monthly debt, you’d need to make $113k* per year to qualify.

– This is still reasonably affordable, especially if there are two household incomes qualifying.

Even though prices are up, this is more affordable than last month because rates are down.

– When we calculated it last month, rates were 7.125%.

– As for existing homes, the median price is $363,000.

– The all-in monthly cost for a 5% down purchase at today’s 6.5% rate on this price is $2881.

– To see income you need to qualify for this, read our post on home affordability calculations for existing homes sold by private owners.

– The key difference buying existing vs. new homes is builders are entities who must sell what they’ve built.

– Private sellers may hold onto their record equity. Builders may be more open to negotiation.

– So existing homes might show lower list prices, but don’t shy away from newly built homes on price alone.

– Negotiate with these builders!

Below are links with more on these topics.

Hit me with questions on new home prices and affordability.

___
Reference:

Homes at $363k affordable even with what Fed is doing to rates

Details on how Biden team cut fees on low-down FHA mortgages, helping 850k borrowers save $678m in 2023

– NAHB chief economist Robert Dietz on homebuilder confidence and Feb new home sales

*To arrive at these qualifying income numbers, I’m using 43% deb-to-income ratio that Federal regs allow for all mortgages of this size in America.

 

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Comments [ 2 ]
  1. James says:

    Great article, gives a good perspective of where the watermark is.

    1. Appreciate it James. Yea, what’s most interesting to me this month is how new home prices rose a bit but with rates down, people need to make less to qualify. Obvious math, but a fact that gets lost in the chatter sometimes. Thx for the comment.

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