How Much Does New Home Construction Cost?

New Homes Versus Existing Homes

The final three graphs in today’s report allow our readers to visually compare the median home price, the median home value, and the median home size of new homes versus existing homes.

The color red is used for single-family detached homes, while the blue color is used for townhomes. Solid lines represent new home sales, while dashed lined represent existing home sales.

Median New And Existing Home Prices

The median price of homes in Tallahassee is on the rise, but thanks to incredibly low mortgage interest rates, home affordability is not suffering (yet).

When I look at the median home price graph above, I see a plateau occurring for new homes, yet continued appreciation for existing homes. Does this mean we should expect to see existing homes begin to form a plateau?

Definitely not. And it really has nothing to do with what we’re seeing here. Instead, just take a look at our most recent report on supply & demand for homes in Tallahassee.

Demand remains strong, relative supply is the lowest we’ve seen in the past two years and there just aren’t enough homes for the bottom 95% of the Tallahassee real estate market.

This means we need to build more, and we’ve already addressed the fact that the cost of new homes is rising.

The value (cost) graph is very telling. Median home values are pushing higher, in both new homes and existing homes too. As stated above, the under-supply of homes is forcing buyers to compete for limited opportunities, and it is causing property valuations to push higher at a higher than traditionally normal rate.

The rising cost of new construction in a high-demand but limited-ability market is creating a whole new dynamic that began a few years ago. The market demand is asking for new homes, but single-family homebuilders cannot build at prices the majority of the market is seeking.

Notice how the median new home size continues to drop, yet the median existing-home has pretty much stabilized at a plateau for the past ten years.

This is the new dynamic in the market. New homes are getting smaller, but buyers (generally speaking) do not want smaller homes. What do you think this is doing for the current and future appreciation rate for larger homes on larger lots?

Buyers today are fixated on the interior of homes more so than at any time during my nearly 30-year career (see How HGTV Is Like Meth For Homebuyers). But this is just a cycle, and cycles change. Over time, it’s the land that holds the value in the home, not the interior modifications which eventually become dated.

I expect to see several significant changes in our housing market over the next ten years:

Our market will go vertical – Expect to see more attached homes and vertical housing. Multi-family buildings with four, eight, and perhaps even more will hit the for sale market, while apartment construction will be higher for the next ten years than it was in the previous ten. Demand for housing will continue to increase with our slow but steady population growth, so multifamily solutions will be critical because single-family homebuilders won’t be able to deliver a product for the lower 2/3rds of the market.

Larger, low-priced homes are like gold. Can you imagine buying a 2,400 square foot home in a great location around San Francisco? New York? Chicago? Those homes would sell for millions of dollars. But today, you can buy hundreds of 2,400 square feet and larger homes in Tallahassee for less than $500K (see the list here). These homes are irreplaceable and will appreciate faster than will the overall market.

Counties surrounding Leon will absorb more of the lower-end – It’s more expensive to build and develop in Leon County than it is in the surrounding counties. Builders have moved to Wakulla, Gadsden and Jefferson County to bring excellent homes to the market at prices far below where Leon starts. This trend is going to continue and will expand.

Those are the major trends coming our way in the Tallahassee real estate market.

Recent New Construction Home Sales In Tallahassee

The following table shows the 1,000 most recent new home sales in Tallahassee and includes the price, value, and size of each new home sold. If you ignore the condominiums, you’ll notice how high the asking (cost) has risen. Each column header can be clicked to re-sort the table in any manner that you like.