Why Have Brand-New Home Sales Suddenly Tripled? I Put on a Hard Hat to Find Out

As a personal finance writer covering the housing market, I often hear that building a brand-new home is pricier, complicated and more limited than buying an existing one.

However, in the current real estate market, where low inventory and steep prices are keeping many buyers locked out, new construction is providing access and affordability. Some homebuilding companies are offering buyers financial assistance with closing costs or lower mortgage rates for the first few years of the loan. Others, such as KB Home, are focused on building smaller, more energy-efficient homes that will save homeowners money in the long run.

New construction has become an increasingly popular option in the last year, with brand-new home sales accounting for more than 30% of the single-family home market, compared with about 10% to 12% prior to 2023. New housing starts are expected to increase in 2024 and 2025, according to the National Association of Homebuilders.

Many prospective homebuyers are on edge waiting for mortgage rates to drop, but even that wouldn’t fix today’s affordability crisis. When mortgage rates fall, there’s likely to be more demand for existing inventory, driving up home prices.

“Ultimately, housing affordability conditions can only moderate with construction of affordable, attainable supply,” said Robert Dietz, chief economist at the NAHB.

I wanted to learn more about how new construction is expanding options for new homeowners. So, I took a trip to Denver to get a firsthand look at how the homebuilding company KB Home is doing it.

Exploring new home construction in Colorado

Founded in 1957, KB Home is the sixth-largest homebuilder in the US. It has developments across Arizona, California, Colorado, Florida, Idaho, Nevada, North Carolina, South Carolina, Texas and Washington. Some of its main competitors include big industry names like D.R. Horton, Lennar Corporation and Pulte Homes.

As soon as I arrived in Denver, I noticed a lot of construction, from apartment complexes and office spaces to single-family homes. I wasn’t too surprised: New construction tends to be most prevalent in areas with greater land availability and lower regulatory costs.

KB Home has 13 different developments in the Northern Colorado area. I visited Turnberry Villas, a 25-minute drive from Denver proper.

Compared with the historic and bustling Brooklyn neighborhood where I live, Turnberry Villas felt isolated and quiet. When I think of a housing development, I picture rows of nearly identical homes side by side. The homes at Turnberry Villas — a mix of smaller single-floor houses and multilevel houses with front porches — all had a similar farmhouse architectural style in either white, gray or beige.

Once completed, the development will have 80 new homes (31 have already been sold). Prices start at $437,990 for a 1,468-square-foot home and go up to $572,990 for a 2,841-square-foot home.

Though home prices vary by location, the national median home price in April was $432,903, according to Redfin. In Denver, the median home price was $620,000. In San Francisco, a far more expensive market, the median home price was more than double that amount at $1,400,000.

Built to be EnergyStar certified, these homes are also more sustainable than older homes, and a fair number even have solar panels.

“Sustainability is a lever for affordability, not a barrier to entry,” said Jacob Atalla, vice president of sustainability initiatives at KB Home. “Buying a sustainably designed home means a customer can actually come out ahead with long-term environmental priorities.”

Newly finished homes in KB Home’s newest Denver development, Turnberry Villas.

Katherine Watt/CNET

The benefits of a newly built home

Since newly built homes often have a higher price tag than older homes, I was surprised to hear that first-time homebuyers (who generally have lower incomes and fewer savings) accounted for 49% of KB Home’s sales in 2023.

After touring several picture-perfect model homes, I understood the appeal of new construction.

Benefit 1: Your home is personalized and brand-new

With a new build, you can often personalize it to your liking, and you shouldn’t have to deal with major maintenance or renovation costs for a while. If I had to choose between a fixer-upper and a shiny new home, I’d personally lean toward the latter. I wouldn’t want to shell out cash for a damaged roof or an electrical fire immediately after making a down payment and taking on a mortgage.

Unlike with an existing home, where everything comes “as is” (for better or worse), with a new home, you only pay for what you want. Some builders let you become involved in the design process from the start.

The majority of KB Home houses are made to order, so you can customize your house based on your preferences as well as your budget. You choose your location, floor plan and design elements before construction begins. Pricey extras, like hardwood floors, are rolled into your mortgage, but the company also offers no-cost options for basic cabinetry, countertops and flooring.

One of the flooring options, a synthetic wood, available to buyers in the KB Home design studio.

Katherine Watt/CNET

Benefit 2: New smaller homes are less expensive

Most new buyers are no longer as interested in large, expensive homes, preferring smaller floor plans with lower price tags instead. And homebuilders are starting to catch on.

The average size of a new single-family home fell 4% in the past year to 2,179 square feet. In the Turnberry Villas development I toured, floor plans start as small as 1,400 square feet. Less square footage translates to a lower asking price.

While newly built homes are still more expensive than existing houses, the margin between the two is shrinking. Since March 2023, the median sales price of existing homes has increased 4.8% to $393,500, whereas the median sales price of new homes fell 6.6% in 2023 to $427,400.

Under-construction single-family homes at KB Home’s new Denver development.

Katherine Watt/CNET

Benefit 3: Some builders are offering financial incentives

In 2023, 62% of homebuilders offered sales incentives to buyers, typically in the form of mortgage-rate buydowns, which can help homeowners save money on interest over the life of the loan, or closing cost assistance, which helps buyers save upfront. Some 36% of builders cut new home prices to appeal to buyers.

According to its website, the homebuilding company Lennar offers different incentives. For example, at the time of this writing, the builder offers to pay closing costs for eligible buyers in the Alabama Gulf Coast region when they finance with the company.

D.R. Horton’s financing arm, DHI Mortgage, says on its website that it offers closing cost assistance, discounted mortgage rates and temporary rate buydowns, depending on your location. A temporary buydown offers the buyer a lower interest rate for the first, second or third years of the loan.

Though KB Home doesn’t typically offer discounts or incentives, its chief operating officer, Rob McGibney, said the company starts with lower, more competitive base prices to aid in affordability.

Using CNET’s mortgage calculator, we looked at how much sales incentives could save you on a new home. On a $450,000 house, closing costs can range from $9,000 to over $22,500. A 7% interest rate on a 30-year fixed mortgage would bring your monthly payment to around $2,761. If a builder covered your closing costs and brought your rate down to 5%, you’d save $462 a month on your mortgage payment and potentially tens of thousands of dollars upfront.

Benefit 4: New homes are more sustainable

New energy-efficient homes are a slow but growing trend. In 2023, 60% of homebuilders incorporated green building features and techniques, which is net-positive for the environment and future owners. Even if you don’t care about your home’s energy efficiency from an environmental perspective, you might when it comes to reducing your utility bills.

For example, a properly insulated home helps homeowners save on heating and cooling costs. Every house I toured in Turnberry Villas was so quiet that I couldn’t even hear the construction going on outside. The reason? Good insulation.

Energy-efficient appliances and lighting also make a big difference in how much energy a house uses day in and day out. KB Home houses are EnergyStar-certified and include WaterSense-labeled fixtures to promote water conservation. Compared to a typical used home, KB Home says homeowners can save an average of $1,300 on utility bills and $500 on water bills annually.

For each home it builds, KB Home calculates the monthly and annual savings compared to a non-EnergyStar certified resale home.

Courtesy of KB Home

What to consider before building a home

New home construction is definitely providing some hope in a difficult and costly housing market. But even though you won’t be pouring the concrete yourself, building a home is a major undertaking. Here are some things to think about before considering a new home.

✔️ Location

Though some areas have new developments popping up all the time, that’s not the case everywhere. In certain regions, like much of the Northeast, tight zoning regulations and high permit costs make it more difficult and expensive to build new houses. If you live in one of those areas, you might have to jump through a lot of financial hoops to score a brand-new home.

✔️ Access

Another thing to weigh is accessibility versus affordability. Coming from New York, I’m used to a walkable, transit-friendly city with nearby amenities, where I can easily pop into the corner bodega to restock groceries or jump on the subway to get to work. But living in a major urban center is expensive, and I would never be able to afford a brownstone in my Brooklyn neighborhood.

While it’s far less expensive to purchase a property in Northern Colorado, I’d have to sacrifice proximity to a major downtown area, and I’d be reliant on a car to get to the grocery store, work or appointments.

✔️ Timing

If you’re considering building a home from scratch, you’ll likely need to be patient and willing to wait several months. If you aren’t flexible on the timing, it could make more sense to buy an existing home.

While a brand-new, customized KB Home house takes an average of four to six months to construct, not every property is built to order, and there are usually a few prebuilt houses that are move-in ready in each development.

✔️ Builder reputation

Most people hire a contractor or find a reputable homebuilding company to buy a new home. Just like with your mortgage lender, it’s important to do your research and choose a company with a good reputation for quality and customer experience.

New construction isn’t uniform and can definitely cut corners. Be wary of builders that don’t integrate best practices, communicate clearly or provide warranties. KB Home says it offers a 10-year structural warranty and a two-year interior warranty.

Here’s a list of the top 20 most trusted homebuilders in 2024, according to Lifestory Research.

✔️ Budget

Having a clear budget is essential to every homebuying journey, especially if you’re opting for new construction. Builders often advertise base prices for their houses, but you can expect to pay additional costs if you want to add any special features, like a finished basement or solar panels.

When you’re buying a home, it’s important to calculate all your costs ahead of time to make sure it aligns with your budget. In a high-rate environment like today’s, make sure you can cover your monthly mortgage costs in addition to property taxes, homeowners insurance and other fees. The cost of homeownership goes beyond just your down payment and mortgage.

My final thoughts on new construction

I’ve seen firsthand how new construction can make buying a home more accessible, especially in markets where existing inventory is limited. Instead of buying someone else’s dream house, I could build one that fits my needs while also benefiting from ongoing savings via energy efficiency. Given how unaffordable the current housing market is, I would definitely be tempted to get a lower mortgage rate or closing cost assistance, which would move me one step closer to becoming a homeowner sooner.

However, I still wouldn’t rush to buy a new home without weighing all the variables, evaluating my preferences and analyzing my budget. In my experience talking to real estate experts and housing market professionals, I’ve learned that purchasing a home is not only one of the biggest investment decisions you’ll ever make, it’s also a completely personal one.

Exploring new home construction in Colorado

The benefits of a newly built home

What to consider before building a home

My final thoughts on new construction

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