What's More Expensive: Buying A House, Or Building One?

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Zinger Key Points
  • The median existing-home price for all housing types in January was $359,000. In 2022, the median sales price was $386,000.
  • With rising construction costs, the question arises whether building a house is the more cost-effective approach in today's housing market.

The housing market has been top-of-mind for new and would-be homeowners for months, as the Federal Reserve’s aggressive rate hike campaign has kept mortgage rates at highs last seen since 2007.

And it’s not just expensive borrowing costs keeping people in their apartments.

The median existing-home (meaning not a newly built home) price for all housing types in January was $359,000, a 1.3% year-over-year uptick.

Read Also: Redfin Takes A Hit In 2022, Is The Company's Goal Of Profitability In 2023 Realistic?

On a yearly basis, in 2022, the median home sale price was $386,300. Existing-home prices have never been that high.

Constructing a home from the ground up has always been an alluring option. However, with escalating construction expenses, the question arises whether building a house is the more cost-effective approach in the current housing market.

Well — the earnings reports from prominent U.S home builders help tell the tale.

  • On Tuesday, Tri Pointe Homes Inc TPH beat estimates by an impressive 26%, reporting quarterly earnings of $1.98 on revenues of $1.5 billion, which also beat estimates by 19.37%.
  • Last month, PulteGroup, Inc. PHM reported similarly impressive numbers, with quarterly earnings of $3.63, beating estimates by 24.4%, and revenues of $5.17 billion, beating estimates by nearly 13%.
  • D R Horton Inc DHI also reported robust earnings, beating estimates by 23% and surpassing revenue estimates by 12.92%.
  • NVR, Inc. NVR beat on top and bottom lines as well.

Is the trend becoming clearer? Builders are back in business, adding much needed inventory to a market which saw record lows in 2022.

According to Bloomberg which cited U.S Census Bureau data, builders are most active in Texas, New York, New Jersey, Pennsylvania, and Arizona.

By analyzing inflation-adjusted data, which includes surveyed land prices per median lot size across the country, as well as the regional costs of contracting with home builders and a 10% additional fee for administrative costs, StorageCafe compares these costs to median home prices in each state.

This analysis can help determine whether building a new home could potentially result in savings compared to purchasing an existing one.

State

Total Building Costs

Median Single Family Home Listing Price

Difference Building vs. Buying Costs 

Hawaii

$551,000

$1,045,000

−$494,000

California

$495,000

$700,000

−$205,000

Colorado

$492,000

$600,000

−$108,000

Utah

$538,000

$635,000

−$97,000

Virginia

$361,000

$458,000

−$96,000

Delaware

$394,000

$490,000

−$96,000

Maryland

$365,000

$460,000

−$95,000

Montana

$515,000

$599,000

−$84,000

Florida

$375,000

$451,000

−$76,000

Idaho

$505,000

$575,000

−$70,000

Washington

$493,000

$559,000

−$66,000

Massachusetts

$576,000

$629,000

−$53,000

Texas

$361,000

$412,000

−$51,000

Oregon

$502,000

$545,000

−$43,000

North Carolina

$363,000

$395,000

−$32,000

Georgia

$365,000

$395,000

−$30,000

Tennessee

$361,000

$374,000

−$13,000

New York

$524,000

$535,000

−$11,000

While the median priced home in Hawaii lists for just north of $1 million, a potential homebuilder can build one in the tropical islands for roughly half the cost.

A homebuilder can rush to California, where the median lot size is just 0.17 acres to add a fresh build instead of purchasing an existing one.

The potential savings dwindle as you look toward some southern states, but New York offers the smallest savings of $11,000 for building a new home rather than buying an existing build. Still, there are 18 states — or 36% — of the U.S where a would-be homeowner can build a brand new home instead of buying one and still save money.

Read next: Elon Musk, The Landlord? Tesla CEO Might Be Bringing Houses To Employees With This Company

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