To build or not to build … Can anyone answer this question? Whenever someone has a big decision to make they typically turn to family, friends and of course the Internet for answers. Does building a new home qualify in the category of a “big decision?” You bet it does and in the real estate market of the past several years, the question of “when” has become perhaps more prevalent than “if.” Here are a few things to consider when deciding if the time is right for you to build.
Opportunity is just one variable that always gets great consideration when the time to buy or build a new home question is asked. We have all heard unlimited stories of the buying opportunities in the purchase market today due to excess and available inventory. It’s simple, Economics 101 says, “where there is excess inventory a sale is certain to follow!” So with the high level of mortgage defaults, reduced equity due to falling home values and of course the economic challenges faced since the recession, there was certain to be a sell off and severe down turn in the real estate market. The questions everyone is asking are, “Is the real estate recession over?” and “Is now the right time to realize a great opportunity?” Of course there are still some great opportunities in the resale market, but how about new construction?
If you look at new construction inventories as documented by the National Association of Home Builders, they are down substantially. Most builders have cleansed their operations of the spec homes that were caught on the books from the early downward spiral of the market. Many builders have restructured their debt and are only building on a pre-sale and as needed basis. This actually means some time in the future, perhaps sooner than later, there will be a significant demand for new homes. So how does this help the clients that want to build? It’s simple, land is more available and the price of land has adjusted where it makes sense to build a home once again. I would call this a time of great land opportunity. Building a new home and creating value starts with the land. If you do not over pay for the land or buy a building parcel with development challenges, you may actually create instant equity in this unprecedented market of difficult appraised values.
Another key motivating factor for any purchaser is always the cost. What is it going to cost me and is now the right time to buy so I am getting the best deal possible. For most people building a new home, especially a custom home, when to build is typically less prevalent than cost and need. Many of us would like to have a custom home, but if we do not need a custom home at this particular time, cost generally plays a larger part.
Now is a great time to build specifically because of cost. Certainly we have had times where the cost to build was lower, however building costs volatility in recent years has been attributed more to rising energy costs, or an occasional worldwide crisis created by hurricanes, earthquakes, etc. that have increased demand for building material periodically. The only man-made variable that has affected building costs is increased regulations of the IRC building codes. Other than that, we have been free from price increase because of reduced demand and low inflation. With that said, cost to build may have hit the bottom. Regulation will continue to be a burden for builders and certainly a low inventory of new homes will be a burden for the consumer moving forward, therefore allowing the market to “increase price!”
The NAHB/ Housing and Economics forecasts New Construction for 2012 to increase 17 percent and another 46 percent in 2013. Good news for builders, bad news for “fence sitters.”
Source: NDI Homes of Maryland