Breaking Down the Costs of Building a New Home
February 12, 2020
A lot of factors go into setting the price for a new home. Buyers may be wondering why costs are so high. The median new home price was $331,400 in December, which is much higher than the median price of $274,500 for an existing home.
Builders are up against labor and lot shortages and the rising costs of materials. Indeed, 87% of builders recently surveyed by the National Association of Home Builders say that cost and availability of labor is a “significant problem” they face. Sixty-six percent called building material prices a “significant problem,” and 63% identified the cost and availability of developed lots as another pressing issue. Builders expect these problems to continue into 2020.
Sixty-one percent of the average home sales price for a new home was comprised of construction costs in 2019, up from 55.6% in 2017, according to a new analysis from the NAHB. Finished lot costs comprised the second largest cost at 18.5% of the sales price.
While costs have risen, the profit margin for builders has decreased slightly, falling from 10.7% of the sales price in 2017 to 9.1% in 2019.
The following is a chart from the National Association of Home Builders that breaks down the costs of constructing a new home.
Updated: May 28, 2020