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60% of Americans cannot afford the new inventory that's hitting the market.
KEY TAKEAWAYS
- Most American households are being priced out of the new home market even as builders shift their focus to smaller homes to accommodate the entry-level market.
- Newly constructed homes are typically 20% more expensive than existing homes. Based on median household income, 60% of Americans are not eligible for a mortgage on a newly constructed home.
- The premium for newly constructed homes to existing home sales is on average $68,454. This gap increases significantly in several markets, including Miami.
The recent uptick in new construction is a positive sign for homebuyers who have been dealing with an inventory-starved market for nearly two years. But, is this truly good news for our homebuyers? A new analysis by Knock, the digital homeownership platform, found that most American households are being priced out of the new home market even as builders shift their focus to smaller homes to accommodate the entry-level market.
Newly constructed homes are typically 20% more expensive than existing homes, and as more of them flood the market, the harder it will be for first-time homebuyers to find affordable property.
Knock compared median household income with median sale price of new homes in the nation’s largest metropolitan areas with the most active housing markets to see how much relief new construction will provide homebuyers. The median price of a new home sold in August was $390,900, and in order to qualify for that kind of mortgage, buyers need to pay a 6% down payment. The buyer would need an annual household income of $80,000 minimum, which is well above the national median of $67,521. This means 60% of Americans are not eligible to buy a newly constructed home.
“This analysis highlights how years of building undersupply and the current supply shortages are disproportionately impacting lower income homebuyers looking for alternatives in a housing market where homes are garnering multiple offers and selling for over asking price," said Knock co-founder and CEO Sean Black.
In the 50 largest metros where new homes account for at least 8% of home sales, the least affordable new construction markets were in Miami, Sacramento, Calif., and Las Vegas. Based on household income, 80% of buyers in Miami and Sacramento would not be able to qualify for a mortgage on a median priced home and 65% of buyers in Las Vegas are unable to afford a new home. According to Knock’s analysis, it would take these buyers anywhere between 18 to 30 years to save for a 6% down payment.
“Although more new homes are expected to come onto the market in 2022, wages have not kept up with home price growth, keeping new construction out of reach for many, especially first-time buyers who don't have the benefit of equity from a home sale,” Black added.
San Antonio, Oklahoma City, Raleigh, N.C., Minneapolis and Atlanta were ranked as the most accessible new construction markets. In comparison with some of the most expensive markets, buyers can get a better deal on a newly constructed home. Approximately 50% of buyers would not qualify for a median priced home based on their income. It would take an average of 15 years to save for a 6% down payment.
In markets with the most new home inventory, the premium for newly constructed homes to existing home sales is on average $68,454. This gap increases significantly in several markets, including Miami, where the median price for a new home is $720,000, approximately $310,000 more than a median-priced existing home.
“If new construction homes do not align with the buying power of the average consumer, benefits of these added units are felt disproportionately throughout the country and are attenuating a much smaller portion of the building gap issue than previously thought,” said Alexandria Quintana, Knock research analyst and the report's author.
