Is 2021 a good time to build a custom home?
Our building experts analyze the state of the real estate market.by Andrew June 9, 2021
Is 2021 a good time to build a custom home?
- It’s unlikely that it will cost less to build in 2022 than it does now.
- The supply of available land for custom homes will continue to be tight.
- Housing Demand will continue to be strong as the large Millennial generation continues to age into prime homeownership age.
- Housing supply will continue to increase, but not outpace demand like it did in the 2008 era. This additional supply will bring more balance to the marketplace making it a smoother experience for buyers and sellers.
- LAST spring in the beginning of the pandemic the trending search on google was “Is now a good time to buy a home?”, we even wrote a blog post about it. At the time it was thought an impending housing crash was coming. We know now the opposite happened with a surge in demand like no one has ever seen before. Now we get the question from our current homeowners “how much more would my house cost now if I would not have built last year?” Simply, the answer is a lot more! Our clients would be looking at an increase anywhere from $50,000 – $100,000+ depending on the time they built in 2020.The dramatic increase in demand combined with supply constraints of Lumber, Windows, Doors, Appliances, etc have substantially increased building costs.
- With all the costs being up isn’t it more likely that they come down in 2022?
- It is generally agreed by industry experts that lumber will come down from its highs but not to the levels that had been the normal range. It will most likely settle in a pricing range that is about 80% – 100% than where the old range was. The other non-commodity pricing like windows, doors, siding, etc do not usually decrease. In addition to the increases, we have already seen we are being warned of additional price increases coming later this year. OUR OUTLOOK is that as the supply chain normalizes, price increases will begin to moderate at a more normal construction price increase pace of 2% – 4% per year starting in 2022. From all the experts we have talked to none of them are forecasting a decrease in overall build costs in 2022.
Where do I find Land?
We often tell people finding land is the hardest part of building your Forever Home. The available lot supply has been constrained for years. According to the economist, Ali Wolf from Zonda, the national lot supply has hit the lowest level they ever recorded. Much of the land being developed currently is for national builders, which is good for our overall housing shortage, however it is not the place most of our clients want to build their forever home. Most of the places our buyers have been able to find land is in more non-traditional lot splits outside of developments.
For our clients looking to find land we do not see the supply of available lots to purchase improving in the near term. The constrained supply of lots will keep prices of vacant land on an upward trend.
Where did all this demand for housing come from?
The large Millennial generation is aging into prime homebuying years. And right behind the Millenials is Generation Z which will continue to fuel demand for years to come. The pandemic seemed to be a catalyst to jump start this pent up demand.
Why won’t the market crash like it did in 2008 era?
In 2008 easy money was fueling demand with no document loans and variable interest rates. Quite simply, people were buying homes they couldn’t afford and creating phantom demand. We were over supplying the market to more than satisfy this fake demand. This is no longer the case. Lending standards are now corrected and people are buying homes they can afford with good down payments. The market also has been consistently under supplying new homes since 2008 so we have a supply deficit of available homes. We are just now starting to build enough homes to keep pace with the current demand needs but it does not satisfy the severe shortage of homes that some have estimated to be around a need of about 4 million homes.
Is 2021 a good time to build?
Our outlook has always been that if you are ready, willing, and able to build your forever home then now is the best time to do it. It’s rare in construction that costs decrease, interest rate costs are low, and the time you have to enjoy your forever home is limited, so it doesn’t make sense to wait. Our homeowners that bought last year would most certainly agree.
In this tricky real estate market it is more important than ever to have a team of experts that are your guides on your forever home journey. Call us today to evaluate your potential land, discuss financing options, and to start on the design of your Forever Home.Visit our model home for real-world inspiration.
We were honored to be one of the real estate experts asked to participate in a panel of experts that answered the question “What are...