A new report highlights what many home builders already know: while buyers may consider a new home, many of them end up purchasing an existing one instead. The Zillow Group New Construction Housing Trends Report 2018 found that while 38% of potential new home buyers considered a new construction home in 2017, only 11% purchased one.

While affordability remains a challenge for home buyers of all types, it’s a lack of inventory that’s trouncing new construction sales, according to Mary Kaye O’Brien, consumer insights director for Zillow Group. Much of new-home construction is at the higher tier of the market, shutting out first-time and even move-up buyers in many markets.

“The story of new construction today is one of gaps. The biggest, for prospective buyers, is the one between supply and demand,” O’Brien says. “There’s a chasm between growing populations in several major metros and an industry struggling to house them.”

The Zillow Group New Construction Consumer Housing Trends Report 2018

Zillow experts believe, however, there is willingness and opportunity among buyers and builders to narrow the gap between those interested in new construction homes and those who purchase them. The top priority for builders should be to focus on creating better relationships with buyers, according to Zillow, while simultaneously balancing increasing costs.

The report found that new construction buyers tend to be older than those who purchase existing homes, are likely repeat buyers, are more likely to be living without children, and are more likely to be retired. Additionally, 74% of new construction buyers self-identified as Caucasian/white, while less than 10% self-classified as Hispanic/Latino, Asian/Native Hawaiian/Pacific Islander, or African-American.

The demographics of new construction buyers closely mimics the overall low ethnic diversity across all home buyers, O’Brien says. Twenty-four percent of all buyers are non-white, according to the Zillow Group survey.

Purchasing Decisions
The study found that many new construction buyers are drawn to the concept of a home’s “newness” and the peace of mind that comes from knowing that the appliances and other features of the home have not been previously used. In fact, around half of buyers said everything in the home being new was the top reason they purchased a new construction home. More than a third said they purchased a new construction home because it was the best value for their money, and 34% said the appealing features of a new construction home were the top draws. The least important factors were access to shared community amenities (10%), curb appeal of the home’s exterior (8%), and having the latest smart home features (6%).

The report also identified reasons why buyers decide not to purchase new construction homes. Location, timing, price, and appeal were the four chief deterrents. Many buyers found that no new construction was available in their desired neighborhood, while other buyers faced rigid dates for either the end of their lease or sale of their previous property, and some buyers expressed that new construction base prices were deceiving as common upgrades in the building process and homeowners’ association fees can radically alter the pricing picture. Additionally, a large cohort of existing home buyers indicated that new construction homes are too “cookie cutter” and that the charm and uniqueness of a home trump a “never lived in” home.

Nearly one-third of buyers who purchased existing homes said the ability to rent out their future home was extremely important in their search. Less than one-fourth of new construction buyers said this was very or extremely important to them.

O’Brien said while it is hard to attribute the desire for renting income directly, age may partly be driving these rental income trends. Existing home buyers tend to be younger than new construction buyers, and the younger cohort may be more likely to place importance on rental income, O’Brien says. Additionally, affordability may play a factor as well as age. New construction buyers are more likely than existing home buyers to be repeat buyers, to use money from the sale of a previous home, and to put 20% or more down on their home.

How Buyers Shop
Zillow also collected data on how Americans shop for a new home. Most who purchase new construction rely on technology, with 68% using a laptop or desktop computer and 46% using mobile websites on smartphones or tablets to shop for their homes. More than one-third of new construction buyers also use mobile apps, which is much less than the nearly 50% of existing home buyers.

While many new construction buyers use online and mobile methods to search for homes, many also rely on offline methods of searching. Nearly half of new construction buyers rely on for-sale and open house signs, about one-third rely on print advertisements, and roughly 20% use direct mail as a resource in their searches. About 40% rely on friends, relatives, or other referral sources.

"As [home shoppers] begin their journey, buyers are excited and enjoy the process. They want unlimited access to online resources," O'Brien says. "As their search progresses, buyers told researchers they feel overwhelmed or frustrated about making choices, so they shift to consulting offline resources, seeking a trusted guide—whether that's family and friends, a real estate agent, or the builder."