Is Now the Right Time to Build a House?
We are all aware of the large inventory of already built homes available on the market out there.
But let's say that none of those leftover McMansions or Foreclosed homes suit your needs. Isn't right now the perfect time to build a home. I would imagine that everything involving the process can be had for a discount from design to construction maybe with the exception of permitting.
Pros
Custom home to your design.
Brand new instead of used.
Discounted prices.
Cons
AEC team may not be financially sound.
Ignorant owner could get raked over the coals by low bid contractor.
Subpar quality.
Inability to get a loan.
Maintain separate residence while under construction.
I haven't thought about this alot, but initially it would appear that the only difference between building now and building four years ago would be the discounted prices and potentially the ability to get a loan. But if you have buyers who are qualified to purchase an existing home, they should be qualified as well for a construction loan.
Maybe the discounts to build are not equal to the discounts available through foreclosure? Any comments or insight?
It really depends on your needs and your location. Can you really not find a house that meets your criteria or that would meet your criteria with some work?
Replacement costs these days are often higher than resale values, so it can often be cheaper to buy an existing property and retrofit it to your needs than to build new.
As an example, when my wife and I were on the market for a personal residence last year, we considered building new. What we wanted would have cost between $800K - $1M, between the land, construction costs and materials.
We ended up buying and renovating an 8-year-old house that had much of what we were looking for for about 60% of the new construction price!
For us, the choice was obvious...
I wouldn't think it's a good time, in general.
Maybe, if your in an area that's growing and new residential contruction permits are on the rise, but in most parts of the country, I think there is a reason home builders are going out of business.
Used to be you could build for less than buy. Don't think that rule works very well today.
Thanks for your input gents. I have a couple of friends who are putting in offer after offer in the LA area and not succeeding on purchasing anything. Ultimately I am hoping to develop and am considering approaching them about building a house that I could develop for them. But I don't want to lead them astray. Might be better if I help them find a resale for the best value.
Ralph, when you say,
Used to be you could build for less than buy. Don't think that rule works very well today.
when was Used to be
During the boom 2000-2006 or prior?
Spec homes, those that are built and then sold for more than the cost. Profitable in the past. You don't see too many spec homes beiing built today. The difference between cost of new construction and market pricing has narrowed, if not gone away all together. IMHO. But all RE is local. I'm sure there are exceptions.
When the market is appreciating and the cost of existing housing exceeds the cost of new construction, then it makes sense to build new. That has pretty much always held true. An issue that you have left out is time. It takes time to find a suitable property, have plans drawn up, clear plan check, and then build it.
I'm a GC in addition to being a RE investor. While prices have come down for most trades, they haven't come down that much (at least not in CA). Most new construction occurs on the fringes of town where the land is much cheaper. If you can get the land for cheap enough, you might be able to pull it off, but that is far from certain.
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Contractor
- First Property Management
Sure, I think it is a great time to build as long as you aren't building a spec house.
Materials are down in cost. Land is way down in cost. Construction workers are begging for work.
If it is for you to live in, prices will go back up at some point, and then you will have exactly what you want for a bargain price.
Just be careful that your contractor doesn't think he can make up his entire lost years income off of his only client (you).
Seriously. I just got 3 bids to repair some wind damage. $20,000 to $25,000 estimates from 3 contractors. We are doing it ourselves. So far $100 in labor, $97 in materials, including $30 for a new drill bit set, and 6 hours of my time to sit around and watch.
I'll have another $100 in labor and I still have to buy a roll of insulation. Whats that? $50?
I've got the rooffing stuff, but it would maybe be another $50 if I had to buy it.
$25,000? Oh yeah, I forgot. $38 for the building permit. The contractor doesn't even put in the 6 hours to sit around and watch.
This is a great time to build a house only if you build it for yourself and to your own specification. As you mentioned, inventory is vast and therefore it may not make sense to build A home, but a home for yourself and the way you want it - this is the time and here is why:
1. Building materials cost are at freeze for lack of demand. That may change once the rest of the Stimulus Package is out there and public construction picks up.
2. Interest is low. Since you are considering it, I assume that you can qualify for a construction loan.
3. Assuming, again that you are building it for yourself for the long haul, the long term loans you can get these days are great and if my prediction of hyper inflation is right, you will also be able to pay it off sooner then later.
Word of caution:
Many people who build custom homes to serve them "for the rest of their life" find themselves in a trap after few years if circumstances force them to sell (Divorce, illness, death, financial hardship). Those houses are ten time harder to sell than the average home and if inflation hit us hard in five -ten years, less people will find themselves qualified to buy that house even if they like it.
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I have a subdivision in So Texas(Weslaco). I can build 1600 + sq ft-4br-2ba-2 car garage for 77K. Home rents for 1K per month and NO maint cost.(under warranty) I've built 10 and now beginning to sell some to the tenants. Appraise for 135-140.
I'm happy to build and hold for now. Rich
It depends on your budget and needs when you decide to build a house. If it only needs renovation why not dwell into it first. It'll cost you less when you're improving your home than building a new one which will take a lot of effort, time and money.
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I think it’s the perfect time to build everything is on sale. Land is cheaper, labor is much cheaper I am personally building my dream house right now.
Brian Haskins
Originally posted by Brian Haskins:
I think it’s the perfect time to build everything is on sale. Land is cheaper, labor is much cheaper I am personally building my dream house right now.
Brian Haskins
Brian, Good for you! I agree that this is the perfect time to build your dream house. Post some pictures when you have a chance.
It is really go to depend on the location and comps of the area on whether it is right to build as well as the loan rate and the ability to get the loan itself. Assuming though that you are simply a cash buyer, building a home right now only makes sense assuming the land value must represent absolutely no more than 25% of the final value and that is really high. I usually prefer to only play if the land represent 10% of the final value. Even within that make sure the land deal is the best in the area in terms of price and potential building expenses and scarcity of land around. So do your due diligence.
I was also thinking of build. It would be my first house, So I was wondering if anyone knows if I would loss out on the first time homebuyers Tax credit?
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#3 Guru, Book, & Course Reviews Contributor
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Originally posted by Ben Lawrence:
I was also thinking of build. It would be my first house, So I was wondering if anyone knows if I would loss out on the first time homebuyers Tax credit?
Hi, put the house under contract. If you own the lot, sell it to the contractor as your down. The build will need to be completed and you acquire it as a purchase.. Ownership of a lot may have a bearing on the tax credit since you just built on it, maybe you can get creative and have the contractor trade lots. Might be worth it.
As to right time, it could be a very good time as labor costs in some areas could be rock bottom. Materials probably won't be better in the future unless inventories really pile up, but I don't think they will since Harry Homeowner will be fixing instead of moving, etc. Financing would be key to the door.