Before You Purchase Your HomeA Tale Of Two Markets

If you have your heart set on purchasing a home that is spacious and newly built you are sure to be in luck. The real estate market abounds with large houses of recent vintage. On the other hand, those of us who would prefer to live in something that is compact and modest, yet we yearn for a home that is newly constructed at the same time, might not have such a large selection to choose from in the marketplace. So, that begs the classic question: What’s up with that?

In A Word It Is Economics

Builders and developers live in a reality that is brutally wracked by the oscillations of the market. One year they cannot build homes fast enough to satisfy buyers and the next they have no buyers to be found. So they tend to drive hard for the profits when they can get them. The developers who supply the market have it burned into their experience that they must maximize profits at all times.

That is the force that is behind the supply of the market. How it shapes the market is interesting to see and good to understand if you are house hunting. It helps to know why the market is being fed with a supply that might not match with what the average consumer wants or can afford.

New Build Pricing Is Different From Resale

The majority of home sales in the United States are the resale of properties that have been previously occupied either by owners or tenants. The value of properties is calculated by simple measures such as square footage and a comparison to similar properties that have recently sold in the local market.

Developers face an entirely different set of economics when they are building new homes to add to the market. Quite simply they earn higher profits when they put fewer and larger homes on a given piece of land.

What builders have to pay to build a home gets a little bit complicated. There is the cost per square foot and then there is the fixed cost per unit. It turns out that fixed costs are significant enough to make a difference in the calculations that developers make.

The Breakdown Behind The Method

Those fixed costs include such things as adding utility services and amenities such as heating, ventilation and air conditioning. Most homes have one kitchen that includes a standard range of features and appliances. All of these things are examples of the elements of a home that remains relatively fixed price regardless of the size of the home.

So when you are building homes, it pays you to have less fixed costs. That is why you put twelve 4,000 square foot homes on a plot of land rather than twenty at 2,400 sq. ft. each. This is the practical impact of profit maximization on the modern suburban landscape.

The Meaning For Homebuyers

This appears to have nothing to do what so ever with the accommodation that the median income family can afford in most parts of the United States. It is great if you have the need for a large home. Those larger homes are going to be expensive and more suitable for families than singles or more mature buyers. If you have an empty nest you may find that it is more difficult to find smaller detached homes and those that are available will likely be older and command a premium.