Why Clark Just Changed His Long-Standing Home Buying Rule – Technologist

Across the United States, the average cost per foot of new homes is lower than a used home, according to a recent report from Zillow.

“New construction homes commanded a serious premium before the pandemic – from $15 to $22 more per foot than existing homes – but they now represent a relative value,” the July 2024 report says. “Buyers of new homes got a $3.50 discount per square foot in May compared to those purchasing existing homes. That’s the biggest discount in Zillow median sale price data that stretches back to 2018.”

More Affordable New Homes: Trend or Traction?

But is the cheaper-new-home phenomenon an anomaly or a current fixture of a constantly evolving real estate market? Money expert Clark Howard says for now he will assume that the change is a temporary one, but in any case, it has led him to reverse one of his long-standing home-buying rules:

“I have said for decades that it is so much better to buy a used home than a new one,” he says. “But, for the first time ever that I’ve been aware of, new homes are pricing out cheaper than used homes.”

So Clark says prospective homebuyers should think seriously about purchasing new construction right now.

This is a major shift and represents “a giant movement in the marketplace,” Clark says. Here’s why:

Used Homes Used To Be the Way to Go, Now It’s New Construction

Clark says traditionally a used home would offer more overall benefits than a newly built home. Here are some of his reasons why he’s felt that way:

Cost

“I give many reasons – only some of them are financial. But historically, the cost of a new home per square foot in most markets would be about 20% higher than a used home.”

Stability

He also says that used homes would typically offer a sense of stability and community to an area, which is nothing to take for granted.

 “For non-economic reasons, I feel that if you buy a used home, you’re in an established neighborhood, you kind of have a sense of how that neighborhood will do and be digested in the marketplace,” he says. “And often, if you buy a used home, you won’t have to worry so much about what might be built on empty land nearby because it will be in an area that is fully developed. There are no X factors.”

Cheaper New Homes: What’s Happening in the Real Estate Market?

Monthly home payments have fallen for the first time in four years, according to recent figures from real estate website Redfin.

“The median U.S. monthly mortgage payment was $2,587 during the four weeks ending August 18, its lowest level since February and down 0.1% from a year earlier,” the report says. That’s good news for prospective homebuyers looking for cheaper mortgage rates and house notes.

Here are some reasons why newly built homes are more affordable than used ones now:

Downsizing Is In

“The average square footage of new homes is significantly smaller than it had been,” Clark says.

The money expert’s home circumstances illustrate the point: Clark and his family moved into a smaller dwelling a few years ago.

“I love living in a condo,” Clark has said. “To me, it’s like living in a big hotel room. You lock the door and you go,” Clark says. “Now if my wife was here and you asked her, I don’t know how many times a week she says, ‘I miss our house. I miss our house. I miss our house. Which I loved. But I don’t miss that house at all.”

The reasons why Americans are downsizing are cost-related, according to Clark.

“That’s a direct effect of home prices having moved up so much, outrunning people’s ability to afford a house, and now we’re getting back to basics.”

Simpler Designs

Americans are also opting for design styles that harken back to the old days when things were simpler.

“Much more practical home designs, being able to squeeze more livable space out of a smaller footprint, eliminating the rooms that people don’t use – a formal living room, a formal dining room,” Clark says.

According to the National Association of Home Builders, a ranch design is among the most popular home styles. “The style also offers the flexibility to be opened up indoors and to the outdoors,” it says in Realtor Magazine. “Attached townhomes and stacked flats have gained popularity due to the need for smaller square footage in dense sites.”

Final Thoughts

Clark says the trend of new construction costing less than a used home will likely be a temporary one, but if you can take advantage of the market, please do.

“A new house could actually be cheaper to buy on a square footage basis, than a used home. I never thought those words would ever come out of my mouth,” he says.