Home buyers’ expectations and the actual cost of newly-built homes are at odds with one another, according to recent surveys from the National Association of Home Builders (NAHB) and the U.S. Census Bureau.
NAHB surveyed more than 3,000 recent and prospective home buyers for its latest edition of What Home Buyers Really Want (2024). Survey participants expected to pay a median price of $307,000 for their next home, with just 20% expecting to pay $500,000 or more. In contrast to these expectations, the Census Bureau’s Survey of Construction indicated that the median price of single-family homes built for sale and started in 2023 was $425,000.
The vast majority – 95% – were priced at $250,000 or more. A substantial share, 37%, were priced at $500,000 or more.
Among buyers surveyed, 38% expected to pay less than $250,000 for their next home and 19% expected to pay less than $150,000. The reality, however, is that only 5% of homes that started construction in 2023 are actually priced under $250,000 (and a negligible count are priced under $150,000).
NAHB Senior Economist Paul Emrath pointed out that the difference between expectations and reality is especially notable at prices below $150,000, where 19% of buyers are shopping for a home and almost no homes are being built.
“Part of the explanation may be that the lower end of the market is differentially served by existing homes,” Emrath said. “However, there are limits to how well existing homes can satisfy the demands of prospective buyers with modest incomes.”
Existing home prices have been setting record highs, with the median existing home priced well over $400,000 in May. Additionally, the cost of residential construction has risen significantly as wages and material prices increase.
“Builders know that a potential market exists for new homes priced under $150,000; they just can’t build homes at such a low cost,” Emrath said, continuing, “Although prices of many residential building materials have been stable recently, the stability comes after massive increases in the two years following the onset of the COVID pandemic. A shortage of lots has been a chronic issue since the home building industry started to recover from the Great Recession.”
As home builders have told Congress on multiple visits to Washington, D.C. to lobby for housing affordability, stringent regulations can impede new construction and regulatory costs can be substantial.
Regulation accounted for $93,870 of the cost of an average new single-family home, according to NAHB’s latest study. Changes to building codes over the last decade represent the largest regulatory cost impact, at $24,414. This is followed by $12,184 in fees paid by the builder after purchasing the lot, $11,791 in regulatory costs incurred by the developer during site work, $10,854 in the value of land that must be purchased and dedicated to the government or otherwise left unbuilt, and $10,794 in required architectural details exceeding builder plans.
