New House Price Data Show Why Costs Are a Problem


New data released by the U.S. Census Bureau and the Department of Housing and Urban Development provide strong evidence that the costs of producing new housing are making it difficult to impossible to build homes for a significant part of the U.S. housing market.

At the beginning of June, the Census Bureau traditionally releases data about the Characteristics of New Housing for the previous year, based on the same survey used to generate the familiar series on housing starts and new home sales.  NAHB tabulation of the data shows that the median sales price of single-family homes started in 2015 was just under $300,000.  Roughly 78 percent of the new homes were priced between $150,000 and $500,000; 93 percent between $150,000 and a $1 million.  Slightly less than 6 percent were priced under $150,000 and a vanishingly small share were under $100,000.

Price v Expectation

In contrast, NAHB’s 2015 Home Buyer Preferences Survey showed that 31 percent of recent and prospective home buyers expect to pay less than $150,000 for a home, and 15 percent even expect to pay under $100,000.

Why the mismatch?  The obvious explanation is that the costs of acquiring land, developing it into a lot, and constructing a home on it often make it impossible to produce a new home at a price substantially below $150,000.

A previous post has shown how the shortage of workers and subcontractors in key trades has caused the majority of builders to increase house prices.  An item posted two weeks ago illustrated a similar problem caused by a shortage of developed lots in many parts of the country.  Finally, an item posted a month ago showed that government regulation on average accounts for 24.3 percent of the price of a new home—which works out to about $84,000 based on the most recent data on the average price of new homes built for sale.  Cost factors like these leave little mystery about why the lower 30 percent of the home buying public is often restricted to the market for existing homes.

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1 reply

  1. When we figure the cash paid out, plus the time wasted getting plans approved for the land and then the architectural plans, engineered systems for electricity, heating, insulation etc, is quite expensive for we have staff, office cost, and the cost of money while these time consuming events are being reviewed, changed, modified and sent back to the architect and engineers; I am unsure where these costs are included?
    After the sale there are additional costs that need to be considered, like insurance premiums which are adjusted on the sale price and coverage for the ten year warranty, the higher commissions for the sale, escrow fees based on sale price, title based on sale price and the additional overhead for the builder. These additional increases all add to the price and when all is figures if the builder is to make an 8-10% profit the actual costs should run 35-40% over the actual cash paid out for building costs.
    Then the ongoing Property Tax adds another 1% or so for rest of the owners life with annual increases.
    We may think this is high priced but the other choice is to be a renter and let the apartment owner pay for these costs. the difference is that after the 30 year loan is paid off the homeowner will only have maintenance and property taxes to pay for. The renter is still paying rent forever.

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