Buy Or Build A House: What's Cheaper? | 2023 Cost Comparison (2023)

Should you build or buy a home?

With home price inflation continuing its upward path, many would-be buyers are considering alternatives — like building their own house from scratch rather than buying an existing one.

But that begs the question, is it cheaper to build or buy a house?

If you compare average build prices to average purchase prices, building your own home is generally more expensive. But there are so many variables that this is far from certain in every case.

Wondering whether to build or buy in 2023? Here’s what you should know.

In this article (Skip to...)

  • Build vs. buy
  • Average cost to build
  • Average cost to buy
  • New home vs. existing
  • Today’s market

Is it cheaper to build or buy a house?

As a rule of thumb, it’s cheaper to buy a house than to build one. Building a new home costs $34,000 more, on average, than purchasing an existing home.

The median cost of new construction was $449,000 in May 2022. Comparatively, the median cost to buy an existing home was $414,200, according to the most recent data available from the National Association of Home Builders (NAHB) and the U.S. Census Bureau.

  • Average cost to build a house: $449,000
  • Average cost to buy a house: $414,200

The cost of building a new house includes buying a plot, excavations, permits, inspections, and other associated costs.

However, the data reveals a significant drop in costs for those who already have a lot on which to build. A separate study from the NAHB, dating back to 2019, ballparks the purchase price for a plot to be 18.5% of the total costs for new construction. This bumps down the cost of building a home to an estimated $365,935 for those who already own a lot.

So, which is the right choice? That depends on many factors — like your needs, location, timeline, local home inventory, and the availability and prices of materials and labor.

Let’s dig into these factors a little further to help you weigh the costs and benefits of building versus buying.

Average cost to build a house

NAHB put the average cost to build a house at $449,000 in May of 2022. That’s including the cost to buy a plot of land.

With the land purchase included, there’s an 8% gap between the average price of building and buying. And building could end up being substantially more expensive depending on your location, construction plans, and the cost of materials and labor.

What impacts the cost of building a home

First is the cost of construction. This can vary a lot not only by the home builder, but also depending on the cost of materials and when you want to build.

You can build a basic home for about $150 per square foot of living space. But it’s easy to spend $500 per square foot or much more if you want the best of everything.

If you have the time and skills to do some of the construction work yourself, that might bring big savings. Just don’t try to do work that’s beyond your capabilities. There will be independent inspections and the home must be mortgageable to have a sensible resale value.

Then there’s the location.

HomeAdvisor reports that it can cost more than twice as much to build in Alaska as in Kansas. And between those two extremes, range the costs in all the other states.

Other building costs to consider

Other variables in the building process include:

  • Site costs: Home builders have multiple site fees, including those for building permits, water and sewage inspections, and architectural and engineering plans, to name a few
  • Foundation: A new home with a basement will increase the overall costs. But even without one, you’ll still pay for excavation, foundation, concrete, and retaining walls
  • Framing and exterior finishes: Not only do these costs vary depending on the square footage of the home and its floor plan, but you’ll also need to figure in the price for building materials and labor costs (such as your general contractor and any subcontractors)
  • Major home systems: These include plumbing, electrical, and HVAC. Again, labor costs for plumbers and electricians also apply
  • Interior finishes: Don’t forget your custom home’s flooring, drywall, countertops, appliances, and other amenities
  • Plot: Landscaping, outdoor structures, decks, driveways, and cleanup costs

You can build a basic home for about $150 per square foot of living space. But it’s easy to spend $500 per square foot if you want the best of everything.

And, no doubt, you could easily bust that top figure if you choose to import acres of Calacatta Carrara marble from Italy for your 5,000-square-foot home.

Plan for overruns

Of course, some construction projects sail through on time and on budget. But it’s very common for both to overrun. So you should build in a 5% or 10% contingency to take care of unexpected building costs. And more if you’re the sort of person who’s easily tempted to overspend when confronted with a range of choices.

Financing a new construction home

Yet another variable is your financing plan. Some people use a mortgage to buy the land and then use savings or a construction loan to fund the project.

But then, when the work is finished, you’ll usually have to refinance the mortgage to repay the bank or replenish your savings. And that means two sets of closing costs: One for the original land purchase loan and another for the refinance.

Meanwhile, construction loans typically come with higher interest rates than standard mortgages. Additionally, there are strict rules about the timeline for construction and disbursement of funds.

An alternative is to get a construction-to-permanent loan. With one of these, you borrow using a single loan to buy the land and build the home. Money is released as you reach preset construction milestones.

For more information, read: Financial steps to building a house: The complete guide

Average cost to buy a house

In May 2022, the median home sales price for an existing house was $414,200 according to the NAHB and U.S. Census Bureau.

But, just as construction costs vary by state, so do home prices. Indeed, there can be enormous differences within states by city, county, and neighborhood.

For example, buy a home in Ilion, New York, and you can expect housing costs that are roughly 800% less than the statewide average. But purchase one in Chelsea, NYC, and you can expect to pay dearly. The median sale price there in April 2022 was an astronomical $2 million, according to

Home price inflation

There’s yet another component in your decision-making process. How quickly are home prices rising where you want to buy or build?

In June 2022, CoreLogic reported that home sales prices nationwide, “increased year-over-year by 20.9% in April 2022 compared with April 2021.” That’s an annualized figure, meaning home prices in April 2022 were 20.9% higher than they were 12 months earlier. Furthermore, no states reported an annual decline in home values.

Again, that’s a nationwide average. If you’re a first-time buyer, home prices where you want to live may well have risen more gently. But it’s just as likely they’ll have shot up even more sharply.

For example, if you wanted to buy in Arizona, Florida, or Tennessee, CoreLogic says prices in all three states rocketed by more than 27% over those 12 months. That might influence your decision over whether to build or buy your home.

Consider your timeline

Should you divert some of your down payment savings into buying a plot now? You could then sit on it until you can afford to begin construction on your dream home. That way, you’d have control over at least some of your housing costs. Indeed, you could argue you have a foot on the bottom rung of the housing ladder.

So to truly answer the question of whether it’s cheaper to build or buy a house, you’ll need to do a lot of homework.

In fact, you may not be entirely sure until you’ve found the plot you want, obtained estimates from contractors, and compared those costs to similar existing homes in the neighborhood.

Buying a new home vs. existing home

There’s one more option. And that’s to buy a new-build home, which is a new house that was only just constructed, but that you didn’t have built for yourself. There are benefits and drawbacks to this strategy as well.

Back in 2017, Trulia estimated that homebuyers paid a premium of about 28% when they bought a new home.

So it might cost you $512,000 to buy a new home that’s comparable with a $400,000 existing home ($400,000 + 28% = $512,000).

Trulia’s article had the headline, “What You’ll Pay for That New Home Smell.” And it’s true that the smell is nice, as is the prestige that a newer home brings. Better yet, you’ll probably have the latest of everything: technologies, finishes, construction techniques, and more.

Home warranties and other savings

There are also solid financial perks to owning a brand new home. For example, you’re way less likely to face unexpected upgrades and expensive renovations.

If you do, those repairs may be covered by the builder’s warranty. NOLO, a legal website, suggests such warranties commonly provide the following protections:

  • One year on labor and materials
  • Two years on mechanical defects (air conditioning, electrical, heating and ventilation systems, and plumbing)
  • Ten years on structural defects in the home

Of course, if you’re using general contractors to build your own new home, you’ll have to negotiate warranties with them.

So you stand to make savings on home repairs by buying new. But there can be other financial benefits. You’ll typically have better insulation than an older home provides and may have more energy-efficient systems and appliances. And all that should deliver lower utility bills, besides helping you do your bit for the planet.

True, it’s hard to assign dollar values to your likely savings. But you should take them into account when deciding on whether or not it’s more expensive to buy or build your own home.

Is it cheaper to buy or build a house in today’s market?

So far, we’ve explored the general principles in the buy-versus-build contest. But what differences do the current economy and property market make?

This article was written as global forces such as supply-chain issues and inflation were pushing construction costs sky-high, when making predictions was even more difficult than usual. But here are some factors that might swing your take on whether it is better to build or buy a house in 2023 and beyond:

  • Inventory shortage: There are just too few homes available to satisfy demand. That’s unlikely to change for years because the only way out is to build more homes. It could take years or more than a decade to build enough
  • Shortage of labor to build: 2021 and 2022 were unusual years for employment. Some older Americans retired early, and record numbers of young people dropped out of employment to start their own businesses. So the construction industry had a hard time putting boots on plots and paying higher wages to attract workers
  • Current material costs: The Covid-19 pandemic caused lingering supply chain issues that created shortages in many products, including construction materials. Take lumber as an example. According to the NAHB, “Extremely volatile lumber prices during the past year have caused the average price of a new single-family home to increase by more than $18,600.” Will building material prices keep falling or head higher in the near future? Only time can tell

There are challenges to consider in the existing-home market, too.

Buyer competition

Inventory shortages have caused home buyers to compete against each other, with many sellers receiving multiple offers above listing price.

In this market, cash buyers often get priority. Their offers are not contingent on financing. And they’re treated as a sure bet while those who need mortgages may be considered riskier. That often applies even if mortgage borrowers have been preapproved by their lenders.

In areas where the real estate market is especially hot, some home buyers have seen several — sometimes dozens of — offers turned down. You can’t blame many for becoming demotivated.

You may be reading this because you’re one of those, and you’re now thinking of building your own home because buying one has so far proved impossible.

That may well be a smart move. But don’t expect an easy ride. The upfront costs of construction materials could hit you hard (especially with price hikes related to the pandemic and supply chain issues). Depending on where you live, you may find it as difficult to attract labor as mainstream developers are.

Rising home values for existing homes

Rising home prices are great for existing homeowners. In June 2022, CoreLogic reported an average annual equity gain of $64,000 per borrower between the first quarters of 2022 and 2021. That’s a 32% increase from the previous year.

In other words, the average homeowner’s wealth jumped by $64,000 in a single year without them lifting a finger. What’s not to like?

Well, a lot, if you’re a first-time buyer or someone who sold their home and can’t find a new one. Because your buying power is reducing all the time — and quickly.

The good news for such buyers is that many expect home price increases to slow dramatically in 2022. So while home values should keep rising, if the experts are right, the worst of skyrocketing prices could be behind us.

Bottom line: Building vs buying a house

So, is it better to build or buy a house? You’re now much better informed on that topic than you were when you started this article. But you probably won’t be much closer to making a decision.

That’s because of all those homeownership variables we mentioned earlier, including:

  1. Construction costs where you wish to build, including possible labor shortages and price hikes for materials
  2. Home price trends in the area where you want to live
  3. The size and specifications of the home you want
  4. Whether you have the skills and time to do some of the work yourself
  5. Whether you’re prepared to live in temporary accommodation while construction is completed
  6. The type of mortgage you choose

Unfortunately, there’s no definitive answer to the original question: Is it cheaper to build or buy a house? The only way you can find out is by running the figures for your own unique situation.

If you know a local real estate agent and contractor, you may be able to model the cost of building for both a theoretical purchase and construction project, then compare them to see which is more affordable.

But, otherwise, you probably need to find a plot and get contractors’ quotes. Then you can compare costs of the home you might build with those for purchasing something similar. Only with those can you make your final choice.


What is cheaper to build a house or to buy? ›

In general, buying an existing home is cheaper. According to the National Association of Home Builders and the U.S. Census Bureau the median cost to buy a house today is $410,600 which is $28,800 less than building one.

Is it cheaper to build or buy in 2023? ›

You may be able to expect the housing market to be a bit more favorable to homebuyers in 2023, but the cost to build a new home won't necessarily feel more affordable.

Is it better to build or buy a house in 2023? ›

Interest rates and overall building costs are not forecasted to decrease into 2023, and could even continue rising. The market is volatile and world events are unpredictable, so it is likely that building sooner could save you money in the long run.

Will construction costs go down in 2023? ›

The report cautions that inflation, a possible economic downturn and China's stance on COVID protocols will keep prices high throughout the year. In 2023, the construction industry is expected to shrink by 7 percent.

Is it financially better to buy or build a house? ›

Is it cheaper to build or buy a house? As a rule of thumb, it's cheaper to buy a house than to build one. Building a new home costs $34,000 more, on average, than purchasing an existing home. The median cost of new construction was $449,000 in May 2022.

What is the cheapest way to build a house? ›

The cheapest way to build a home is to design a simple box. Sticking to a square or rectangular floor plan makes the building and design simple. Generally speaking, building up is cheaper than building a sprawling one-story home, so you may want to consider planning for a multiple-story home if you need more space.

Will 2023 be a good time to build a house? ›

Based on what we're seeing, our team of experts here at Heartland Builders thinks that 2023 will be a good time to build your custom forever home, despite rising costs and interest rates.

Will 2023 be a good time to buy a house? ›

Levine added, “Home prices will also moderate further over the next several months as interest rates remain elevated in the near term and seasonal factors come into play.” CAR in its 2023 California Housing Market Forecast report, predicts a 7.2% drop existing single-family home sales in 2023.

Will lumber prices go down in 2023? ›

Prediction 2: Lumber demand will drop again 2023

This follows consumption dropping by an estimated 1.6% (0.8 BBF) in 2022, which was driven by a sudden weakening in new residential construction activity in the second half of the year and a major correction in do-it-yourself (DIY) lumber demand.

What will houses be worth in 2025? ›

Using Zillow's typical home values, we forecasted their potential growth based on current year-over-year change projections. We then compared it to the projected median U.S. home value for 2025 ($481,692.98) to see what cities just miss the mark of affordability.

What year will be the best time to build a house? ›

Fall is the prime building season for homes. There are a few aspects of fall weather that create perfect construction conditions: Soft soil: Fall weather — and soil during this season — is cool and dry. These soil conditions are excellent for homebuilding because the ground is much easier to excavate.

Why is it more expensive to build a house than buy a house? ›

On the high end, you could pay more than $2.5 million to complete your project. There are two key reasons why building in California is so expensive: the parts and the labor. Construction materials in California match other cost of living expenses.

Are building costs falling? ›

The prices of many building materials reached a peak during the summer of 2022 and have steadily fallen since. The reasons why building material prices have fallen are the diminishing of supply chain disruptions and weakening demand (as expected) as forecasts for economic development in many countries are lowered.

Is construction going into recession? ›

CPA economics director Noble Francis said: “The construction industry has enjoyed a buoyant two years since the first national lockdown largely shuttered the industry back in Spring 2020 and activity still remains high for the moment. Overall, however, construction output is forecast to fall by 4.7% this year.

Will building materials go down in 2024? ›

Soaring costs for construction materials likely won't plateau until 2024, industry experts tell Construction Dive.

Is it financially smart to build a house? ›

Is It Cheaper to Buy or Build a House? In 2019, the average cost to build a house was over $485,000. Meanwhile, the average cost to buy an existing single-family home was just over $310,000. So choosing to buy a pre-existing house instead of building a new one would have saved you around $177,000!

Is a house worth more after its built? ›

Quality of build and appearance

A well built and maintained home is going to be worth much more than a poorly built and maintained home, all things being equal. If you are building or renovating a home, there are a number of assets that might help.

What makes a house more expensive to build? ›

Key Takeaways. Building a house adds costs for land purchase, the permitting process, and multiple inspections. The farther your plan strays from a standard model, the more costly it will be. Buildable lots in urban areas can be prohibitively expensive.

What is the least expensive type of house to build? ›

Ranch Homes

A home with a simple and concise layout is the cheapest type of house to build. Ranch homes are typically single-story structures with attached garages. They're easy to find construction plans for and highly customizable, so you can find a home that fits your needs and budget.

What's the most expensive part of building a home? ›

The Foundation

Pouring a foundation is expensive; often it is one of the most expensive parts of building a home, usually over most of the items on this list. A larger home's foundation will be more expensive to pour. The type of foundation and the climate you're building in will also matter.

What is the cheapest state to build a house in? ›

Rounded up below is a list of the top five least expensive states to build a home this year, based on the study.
  • #1 Oklahoma. Boomer and Sooner fans are in luck when it comes to the study's results revealing Oklahoma as the cheapest state to build a home. ...
  • #2 Mississippi. ...
  • #3 Nebraska. ...
  • #4 Arkansas.
Feb 1, 2022

Do construction costs go down in a recession? ›

Home renovations will typically be more affordable during a recession. While material prices rise, contractors generally charge less for your home remodel during lean economic times.

How many years will a new build house last? ›

This is largely debated within the construction industry as it is really dependant on the materials that are used, the quality of the workmanship and the maintenance that is required and followed through on. On average, the generally expected and acceptable lifespan of a home should last at least 60 years.

What are the pros and cons of building a house? ›

Building A New Home, At A Glance
Complete customizationMore expensive financing
Less competitionUnexpected costs and delays
Less ongoing maintenanceMore time and stress
Healthier homeMore effort
1 more row
Jan 12, 2023

Is it more expensive to build a house up or out? ›

Building up is always the least expensive option for increasing your home's square-footage because it requires less material and labor.

How much is it to build a home in CA? ›

On average, building a custom home in California will cost $500 or more per square foot, according to Aballi — while building a tract home in California will cost $300 to $350 per square foot, according to Laniado.

Is it cheaper to build a house in the fall? ›

Materials could cost less

There is less demand for construction materials as the weather turns cooler, which means prices could be substantially less.

What part of building a house costs the most? ›

Framing. Perhaps the most expensive part when it comes to building a home is the framing, which consists of wooden beams that make up the home's skeleton. Forbes states that high-quality lumber averages about $33,000 for a home in the United States. Metal stud framing systems begin around $20,000.

Is it cheaper to build a 1 1 2 story house? ›

People typically expect a 2-story home to be more expensive than a 1-story, but that's not always the case. A 1.5-story home is actually the most expensive.

What are the biggest costs when building a house? ›

What is the Most Expensive Part of Building a Home?
  • The Lot. The land that your home will be built on will make up a substantial portion of the cost of the home. ...
  • The Foundation. ...
  • Framing. ...
  • Plumbing & HVAC Systems. ...
  • Windows and Doors.
Feb 5, 2021

Is it cheaper to buy land and build a house in CA? ›

Is it cheaper to build or buy a home in California? Typically, building a new home costs about 10-15% more than purchasing an existing home. The reason is simple, in that everything in the home you're building will be brand new as opposed to an existing home.

How much will it cost to build a house in in 2000 Sqft? ›

10 lakhs. For the construction of a 2000 sq ft house, the total cost of the building @ Rs. 2000 per sq. ft will be around Rs.

How many months does it take to build a house in California? ›

Building a home in California takes an average of seven months, but it can take more or less time depending on a variety of factors including your home's size and style, the availability of labor and materials, and even the weather.


Top Articles
Latest Posts
Article information

Author: Jonah Leffler

Last Updated: 11/29/2023

Views: 5698

Rating: 4.4 / 5 (45 voted)

Reviews: 84% of readers found this page helpful

Author information

Name: Jonah Leffler

Birthday: 1997-10-27

Address: 8987 Kieth Ports, Luettgenland, CT 54657-9808

Phone: +2611128251586

Job: Mining Supervisor

Hobby: Worldbuilding, Electronics, Amateur radio, Skiing, Cycling, Jogging, Taxidermy

Introduction: My name is Jonah Leffler, I am a determined, faithful, outstanding, inexpensive, cheerful, determined, smiling person who loves writing and wants to share my knowledge and understanding with you.