Should you build a house right now with lumber prices and material prices and labor shortages and just costs in general growing through the roof, should you build a house right now? That’s the topic of today’s video, so stay tuned.
By the end of this, you’ll have a better understanding of how homebuilders are seeing things right now and how you, as a consumer, what you should be thinking about so you can decide if building right now is right for you and it starts right now.
I’m Jonathan, and this is my lovely wife and partner, Rachel, and we’re local real estate brokers right here in Hampton Roads and your insider’s into the world of all things custom building.
Building A Home During COVID
Building a home can be one of the most challenging, yet rewarding experience of a person’s life. It’s also oftentimes the largest financial transaction that takes place at one moment in a person’s lifetime as well. So there’s a lot to consider, and it’s a decision that’s not made hastily or without consideration. So as you most likely know, cost of build has really trended upward, particularly in the past twelve to 18 months post COVID and post-pandemic.
That’s led a lot of people to think to themselves, should I build a home right now with prices being so high? Should I wait? Will prices go down? Will prices continue to soar through the roof? Have they come down a little bit post-COVID? So the reality is these are the questions people are asking. What’s the answer? Well, first off, we’re not going to sugarcoat it for you right now. The answer is yes. Building a home right now will absolutely cost you more than it would have before COVID hit us all.
Building home right now is harder with material shortages, and many tradesmen are continuing to choose to stay at home and take government checks. This has also created a labor shortage, with most building materials going up in some cases, such as lumber going up, increasing like 100% or more from what we’re seeing across the board. Home builders are seeing an increased cost of 35% or more a project. Yeah, and that’s on average so I mean, I know we experienced that we build. We were we were well into the six figures over budget. So yes, it’s tougher. And yes, it’s more expensive, right? We said we wouldn’t sugarcoat it. More expensive than it’s ever been to build a home. Yes. Yes, yes, yes. But that wasn’t necessarily the question. The question is, should I build a house right now?
That’s a different question. The biggest issue right now in building is that the cost has never been higher. The lead times are longer, and material and labor shortage are still impactful. So where is the upside? Because we probably beat you down into negativity at this point? The reality is, we’ve told you all the cons. Now knowing this, here are four considerations to make so that you can get a more macro view economically of the real estate market as a whole and see a new bill within the context of broader factors and see it as an investment in a more broad landscape.
Best Time to Sell Your Home
So number one. There’s never been a better time to sell. So if you’re selling and you’re moving up into a new home, the reality is you’re going to get more money for your home than you could have ever gotten in the history of the real estate market across the board, every large housing analytics company and establishment continues reporting record home sales across the country, and it’s no different in the Hampton Roads market.
Almost all of our listings on the market have multiple offers in a matter of days. Home transactions are 15 to 16% higher than they were this time last year, and there is no end in sight at this point. We don’t anticipate a crash like 2008 because we’re not giving out bad loans, so it’s a seller’s market right now, and I would not buy into the idea that a crash is in our immediate future. So knowing that the appreciation trend has been in effect for a while and probably isn’t going to stop the housing market is continuing to see appreciation and growth. So you’re going to make more money on your home than you could have at any other time. And when you go to sell, you should be doing very well and your proceeds and you can use some of those proceeds to offset the increased costs of new construction.
Hard to Find Another Home
So number two, this is a different side of the coin. As number one, we just discussed. Sellers are getting top dollar, which means if you want to move, it’s a difficult time to find an acceptable replacement home. Yeah, true. We’re totally in a seller’s market, which means you’re going to do great as a seller. But once you sell, it’s going to be very difficult to be a buyer. So it’s going to be difficult to find a replacement home that you really like.
The pandemic created a huge inventory shortage. People basically just decided to do the social distance thing and frankly didn’t want to let people come in their home makes sense. They want to put themselves or other people at risk. But the reality is we have not recovered. People just opted not to list, and that supply has not come back online yet. According to Redfin, the supply of existing homes on the market nationally is down 18% year over year. And yet we have a flood of new buyers coming in month after month. So supply and demand is crazy out of whack, and it’s no different here in Hampton Roads. So what that means is that in order to truly get what you want, you might have to consider building this is exactly what Rachel and I experienced.
We sold our previous home, got great money for it, sold it for more than we thought we could. Got a rental. We’re planning to buy a resale. We looked for a year and could not find something that worked for us. So we went out and bought ten acres and built what we wanted. So this is a reality we look forever what seemed like forever. So just food for thought. That’s a reality. Buying selling you’re going to do great. Buying is going to be difficult.
Cheaper to Borrow Money
So, its cheaper to borrow money right now than it ever has been before. That means you can afford to build a better house while borrowing historically low, cheap money. In other words, your dollar will stretch further because the interest rate is so low. You could also consider that with inflation being over 6%, you’re going to be paying your mortgage back with cheaper and cheaper dollars because your rate is locked in. So no matter what happens with inflation, your mortgage payment will always stay the same, which is a huge lever in your wealth building.
Yeah, it’s wild to think that the spread between inflation and borrowing money is 3%, so you’re literally making money to borrow money because inflation is so high. And the other thing is, I don’t like inflation, but it works so much in your favor because the dollar is going to be worth so much less 20 years from now, but you’re going to be paying them back with the same dollar, but it’s only going to be worth like 30, 40, $0.50 then.
Older Home = Costly Renovations
So something to consider long term. In spite of the fact that building costs have gone way up the last one or fourth one, lower renovation and repair cost repair costs can be a big drag when you own a home, especially an older home. When you build a home, everything’s new.
You don’t have to deal with broken faucets or putting on a new roof. A new home well built will save you thousands and thousands of dollars in the first 20 years because you’re not dealing with roof and HVAC updates and windows and siding and all those things that plumbing. All those things become an issue with an older home. So everything’s built to your specifications as well. So you’re not putting in a new kitchen, you don’t have to update the bathrooms. So these are all things that you don’t have to spend money on when you’re buying a resale versus a new construction. Not to mention the monthly dollars you’ll save on your utility bills because homes are built energy efficiently these days. So personally, our water bill decreased drastically in our electric bill decrease to once we built a home in the home we built was much larger than the one we lived in before.
Newer Home = Better Appreciation
So. So finally, number five new construction appreciates the fastest now, Jonathan, why don’t you tell us what that means? Yeah, for sure. So the nicest houses in the nicest neighborhoods generally see the appreciation first, like playing monopoly like Boardwalk and Park Place, where the nicest spots and the nicest place to be. They garnered the most value, and it’s no different with new construction. So some things to think about step back, take a longer term perspective, and maybe the jump to new construction isn’t quite as painful as you thought it would be.
So hopefully you enjoyed this video. I’m Jonathan. This is Rachel. We are that fit team professionals in real estate and passionate about people. Hope to see you soon.