Building a Home Now--Smart Move?

[jimh406]

From what I'm hearing, the existing house prices are going down in many parts of the country. Labor costs are up and increasing. The economy is an unknown. Interest rates are at 20 year highs.

I think those factors say it's a horrible time to build.

However, there's all that factors into building a house as well. It's not a simple thing to do to find general contractors and subcontractors that are honest and skilled and will complete their part of the job on time. You'll also have to deal with some things no being done exactly as you requested. Add to that cost over runs including possibly big escalations in material costs.

Building a house is a lot like ordering a new vehicle exactly the way you want. In theory, you get exactly what you want. In practice, you get close to what you want for a lot more money.

 

[Marble]

I am looking into having my home built on my property.

I have heard two different views on this.

A. Do not build now with the current rates. Wait until rates drop and then build.

B. Build now while rates are high. No one is building and material costs are low. Once/If the market fixes itself, then refinance at a lower rate.

Any experts on here? What are your thoughts?

Historically, the rates are fairly average. We are just used to the last 20 years of rates well below where they have historically been. I think the average is right 5.75, or close to that.

Trying to time the purchase of a home is a big gamble. Prices generally always go up for home prices and usually only drop based upon unforeseeable events. Interest rates and stocks are the same. There may be a predicted future value or rate based upon current conditions, but when conditions change, so will the actual values of both based upon what the change is. My opinion is, it is better to be a home owner. If I can afford to purchase a home correctly than I would. If rates drop, great, if not, than in still OK.

No one here can answer that for you. You'll have to run your own numbers to see if you could afford to buy.

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[bozeman]

Build. No better time than ‘now’. Too many ppl put off dreams waiting for a better time which may never come. Build and enjoy!

 

[WRO]

And you are not factoring in your mortgage. In my example you are going to sell with 22 years left on your typical 30 year mortgage. That will eat any appreciation when you pay it off. Hopefully you refinanced in 21 and are at a great rate. I’m specifically speaking to 8+ percent you are seeing now. Typical home values increase at 4-5% yearly. The mortgage interest rate eats that.

I’m not saying it doesn’t work everywhere. I’m just challenging the typical thought of “your house is an asset”. Do the math for your situation including all the stuff I added. And if it makes sense, it makes sense. You’d be surprised in how many instances it is actually better off to rent even at $3000+ a month right now and put the money you would have put on a house towards something else. Hell, even money market and T-bonds are beating the yearly average property value increases right now.

Buying a house makes a fixed cost vs rent which is variable.


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[bojangles808]

Hard pass though since I have a 2.1% interest rate for the 25 year term, we're also putting down over a thousand dollars extra towards the principal each month.

Why would you put down an extra thousand towards principal at such a low rate? Take that extra $$ and invest that in other avenues you will make way more $

EDIT nvm looks like others already made the same point. Either way you're sitting pretty at 2%

 

[WV Mountaineer]

Good question. I had the same thought. We keep hearing home prices are high b/c of low inventory. Does that mean builders are pricing an extra $100-200k of strict profits over what they charged a few years ago when materials were similar cost? Materials are high here, but not any more than they were peak Covid when houses were much cheaper. I understand their labor, insurance, etc has all gone up. But $200k worth?

We have a new development in town full of $600-$800k houses that are all dropping rapidly in price, some by $100k. Which tells me the listed price of new construction homes must be far above the actual cost to do it.

For years and years contractors have worked cheap. Because there was a blue million of them. And, illegal immigration that results in dirt cheap labor for general contractors really kept profit margins slim. So, They had to be competitive in order to keep work ahead.


Now, post Covid, contractors have all the work they can handle and an even worse labor market to hire from.


These two reasons are why pricing is higher. For decades the contractor has taken the short end of the stick. Now, it’s their turn to work for profit. Learn to build and get legal to do so or pay the price being your only two options.

It amazes me how the public insinuates that working for a profit is a problem caused by the contractor. When McDonald’s and everyone else raises prices, people just buy it anyway. When a contractor wants to invest money, grow his business, or just wants to make a profit, it’s now a problem.

I’m not complaining or blasting anyone. But, it takes a pile of money to keep a working contracting business going. Nobody does this for Walmart wages. They won’t survive.

 

[WRO]

For years and years contractors have worked cheap. Because there was a blue million of them. And, illegal immigration that results in dirt cheap labor for general contractors really kept profit margins slim. So, They had to be competitive in order to keep work ahead.


Now, post Covid, contractors have all the work they can handle and an even worse labor market to hire from.


These two reasons are why pricing is higher. For decades the contractor has taken the short end of the stick. Now, it’s their turn to work for profit. Learn to build and get legal to do so or pay the price being your only two options.

It amazes me how the public insinuates that working for a profit is a problem caused by the contractor. When McDonald’s and everyone else raises prices, people just buy it anyway. When a contractor wants to invest money, grow his business, or just wants to make a profit, it’s now a problem.

I’m not complaining or blasting anyone. But, it takes a pile of money to keep a working contracting business going. Nobody does this for Walmart wages. They won’t survive.

Good contractors always make money. I've been in the business 20 years plus, gouging has been happening lately strictly due to supply and demand, although many subcontractors have had so many GC issues that they are just pricing the worst case scenario rather than the best anymore.

 

[2five7]

This could be a regional thing, but here in Utah, which has been one of the hottest markets in the country, now is a good time to build. Contractors will actually answer their phones, and cabinet shops are only around 3-4 weeks out, last summer they were 4-5 months out.

 

[Rich M]

I am looking into having my home built on my property.

I have heard two different views on this.

A. Do not build now with the current rates. Wait until rates drop and then build.

B. Build now while rates are high. No one is building and material costs are low. Once/If the market fixes itself, then refinance at a lower rate.

Any experts on here? What are your thoughts?

The whole interest rates going down was temporary, In 2000 I was happy to get 8.25% - refinanced it to 6% and them to 3.5%. I just don't see 3.5% as being "normal".

If the market goes down, then refinance at that time, until then, just build the house. Can't time the market and the time we spend trying to is usually wasted. Funny in that I was at the bank yesterday and the guy was saying he did not expect the interest rates to go down any time soon.

 

[WV Mountaineer]

Good contractors always make money. I've been in the business 20 years plus, gouging has been happening lately strictly due to supply and demand, although many subcontractors have had so many GC issues that they are just pricing the worst case scenario rather than the best anymore.

“Gouging” as a direct function of supply and demand isn’t grouting. It’s bearing market value.

I’m not here to judge other GC’s. I’m not here arguing your situation. I’m expressing my experiences. No one leaves a dollar for a dollar. That isn’t gouging.