Do New Homes Hold Their Value?

In this climate of economic uncertainty, high inflation and even higher construction costs, many potential homeowners are wondering whether it's safe to make a huge investment by building their house plans. We took the time to assemble the data to try to get a clear picture of the historical risks and rewards to building a custom home. So before you dive into your home building journey, let's take a look!

Do newly built homes hold their value?

For this analysis, we sampled homes across the spectrum of construction costs that were built speculatively in the last 20 years, and then resold at a later date. We did not evaluate differences in lot size, house design, floor plans, or square footage.

 

Annual % Appreciation vs. Initial Sales Price (New Construction Homes)

Key Takeaways:

  • On average, new construction homes have returned an annualized 2.8% per year. (CPI inflation has averaged 2.2%.)

  • Of the 56 samples, only 5 (9%) of homes lost value after being built. 

  • There appears to be a weak curve to the data (our sample size is low). Middle-priced houses experienced the largest percent appreciation, while houses at the low and high tails of the distribution experienced much weaker price appreciation. 

How does this compare to existing homes?

According to the US Federal Housing Finance Agency, overall home prices have averaged about 4.0% annualized price appreciation over the past 20 years which is slightly better than the 2.8% average we see here for newly construction homes.

Keep in mind, that this isn't an apples-to-apples comparison since new homes require a lot less maintenance & upgrades than older homes do, so that factor is not reflected in these numbers. 

What does this tell us about Home Design?

While this analysis doesn't dig into popular house plan styles, floor plans or architectural styles, it does tell us a lot about what kind of home to build if you are looking at a new home as both an investment and a place to live. While it is your dream home, it's important to monitor construction costs, build a house plan that maintains resale value and don't overspend since it's riskier to build homes that cost more than $1MM. Like any investment, regardless of what floor plan you build, your new home is unlikely to appreciate the same amount each year. Building a home is a long term investment, short investment horizons are much more volatile and risky. But part of the fun of designing a house is the speculation, so go ahead and enjoy the process and bring your dream modern house plan, modern farmhouse plan or craftsman house plan to life.

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