Are you trying to decide if this is the right time to build a custom home? The building industry has been flipped on its head over the last three years, starting with soaring material pricing and supply chain disruptions, to most recently, rising interest rates. Even the experts have been left guessing on what is to come.
We’ve been down this road many times over in our 35 year history of building new homes. Recessions, world changing events, you name it, we’ve seen it. Since the turn of the year, we have seen some improvement, especially as supply chain disruptions are settling down. But what’s to come? While I am no expert, there is historical data to lean on which points to several good reasons to believe the market will continue to improve.
This is why…
Builder sentiment has been on the rise since December.
This is a very important indicator in the market because it reflects how the boots on the ground see things. Sometimes this index isn’t reflective of the here and now, but it is a key indicator for where things are headed. The index is currently over 50 points which is getting back to normal levels after over 2 years of volatile material pricing and supply chain disruptions. Builders are feeling more confident about things moving forward which is good.
The Feds are slowing down.
Experts believe we are reaching the ceiling in terms of rising interest rates (in this cycle). After nearly 12 months of rate hikes, this will have a positive impact on buyers’ psyche and should push more sellers and buyers into the market. What will rates do for the rest of this year? We’re expecting them to settle over the next several months. We won’t get back to mortgage rates in the 3-4% range (will we ever see that again?), but I do believe rates will improve slightly. It is all about adjusting to the “new normal”.
There is pent up demand.
Demand for housing is high. While we have seen downward pressure on inventory, home values are holding steady, and homes are selling in this highly competitive market. I spoke to a client last week who sold their home in 18 hours with 8 competing offers. The spring real estate market has been active and experts believe things will remain busy well into the summer. Especially as sellers throw their hat in the ring.
So what should you do? If you are considering a new home (either resale or new construction), it is likely because your current home isn’t fulfilling the needs of your family. And if the last 3 years have taught us anything, it is that our homes have become the central location in which we gather and work. Space at home is not just a convenience, it is a necessity.
The way I see it, you have 3 options right now…
Option 1: Stay Where You Are
If you are sitting on a very low mortgage rate, buying a new home means giving up that low rate (at least for now). It may not make sense for you to do that now, but that also means you’re stuck with the space you have. The number one reason clients build with NDI is to achieve more and better planned space. Buyers will need to settle into the reality that interest rates are at a new normal and decide if keeping their low rate outweighs the need for better space.
Option 2: Buy Existing
Buying an existing home might be a good option if you aren’t able to wait for your new home to be built. But I’d encourage you to think through this option for 2 reasons. First, conventional mortgage rates are trending higher than construction to perm loan rates. If your rate is going to increase, at least with new construction rates, you’ll be paying a little less. The second (and obvious) reason to think twice about buying resale is that you are buying someone else’s home. It won’t be planned and designed with you in mind, so you may not get exactly what you want.
Option 3: Build New
There are many good reasons to build on your lot, but I know it is hard to reconcile how mortgage rates and construction costs have been on the rise. Low mortgage rates lasted longer than anyone anticipated, and while no one knows for sure what mortgage rates will do, most agree they won’t drop below 5% any time soon. Over time, rates will ebb and flow from here, as they always have, and there is a good chance that refinancing to a lower rate will be possible.
But there is one certainty, it isn’t going to get any cheaper to build than it is right now. Material and labor costs are on the rise, and even if you wait it out for rates to fall, you may not be saving much, if any at, all due to increased build costs.
Bottom line? If you are thinking about building in the next 2-3 years, don’t wait. It won’t get any cheaper than it is right now. The important thing is to partner with a builder who knows how to control costs and work within your budget, so you know your investment is sound.
We would love to share with you about how we’ve worked with thousands of clients over the years to build their dream home (within their budget!) no matter what is happening in the world around us.
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