Why Now is the Time to Build

Posted: June, 22, 2021 | Categories: Blog | Tips & Trends

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Recently, many buyers interested in a new home have becoming increasingly concerned over recent skyrocketing costs of materials and are asking, “should we wait to build a new home.”  Volatile markets are always a cause for concern, and buyers are right to proceed with caution to make sure they are making the best financial decision for their future.  Here are some factors to consider when deciding whether 2021 is still a great time to build a home in Southwestern Wyoming.

  1. Supply – Not only is lumber more expensive and harder to find right now, existing houses listed for sale are also scarce.  In addition, new homesites are extremely limited in most of the areas we build in.  Due to a lack of suitable land for development and increased costs and regulations for new development, few new communities are in the development process, meaning that lot availability is likely to worsen, and any upcoming lots are sure to be more expensive than any lot available today.  The bottom line is do not expect a lot more homes or lots available on the market anytime soon.  
  2. Demand –  On the other hand, demand for new housing is at an all-time high across the country. Many home builders are sold out through the end of the year, and some have even stopped selling altogether because they just don’t have anything left to sell.  After the 2009 recession, 2/3 of homebuilders went out of business, and as a result, the industry has not kept up with demand in the past decade. In addition, there is a large-scale reshuffling going on with buyers looking for homes that meet their needs better, as well as leaving crowded overpriced cities and moving to more rural areas.  The bottom line is there are just not enough houses in the areas where people now increasingly want to live.  We are experiencing this phenomenon in Southwestern Wyoming with more buyers interested in coming to share our open spaces, clean air, and lifestyle.  Even with some residents leaving the area and state, we foresee continued high demand for quality housing in this area.
  3. Interest Rates – Perhaps one of the brightest rays of sunshine in this chaotic, volatile housing market is the historically low interest rates.  Since 2008, Interest rates have averaged around 4.36%, according to Lending Tree.  Current rates are hovering around or below 3%.  We have seen buyers get as low as 2% rates on some loans. Most experts seem to agree that rates will remain steady through the end of this year, but the Fed has expressed a willingness to raise rates at some point in the future. To show the impact of rising interest rates, consider the following example:A $350k home sold today financed at a 3% rate with 10% down would cost $87,000 less over the life of the loan than the same home financed at the historical average rate of 4.36%, a cost savings that is much larger than the increase in material prices seen in the past year.
  4. Inflation – Many financial experts are concerned about the possibility of increased inflation because of recent massive government deficit spending combined with the ongoing record low interest rates. We may already be seeing the early effects of inflation with higher gas prices, food, and other products that have risen in price this year. The impact of inflation on housing cost is that not only will housing get more expensive but increased overall cost of living will take a bite out of buyers purchasing power. 
  5. Quality of Life  -- If you are reading this article or considering a new home purchase in the first place, then chances are good that you have a serious housing need.  You either don’t have enough space, the right kind of spaces; or you want to move to this area for a job opportunity, to be closer to family, or simply to enjoy the quality of life we enjoy in Southwest Wyoming.  In considering all these factors, it is important to consider the value of your quality of life.  How long can you bear to stay in your current housing arrangement before something has to give?

In summary, the combination of the above factors suggests to us that buyers may not benefit by waiting for costs to come down.  The combination of reduced supply and increased demand has resulted in increased market values for all homes, new and used.  There is no end in sight to the demand for new homes, suggesting that it is unlikely we will see significant drops in home values or lumber costs soon. 

“In terms of building material — whether it’s structural lumber, appliances or drywall — the supply-side issues should persist into 2022 and demand will also remain strong," says Robert Dietz, Chief Economist of the National Association of Home Builders.  

It is also important to reiterate that cost increases are occurring throughout the supply chain, with lumber merely being the hardest hit, but by no means the only material segment affected.  Other components that have seen increases and shortages include concrete, steel, windows, electrical wiring, appliances, siding, garage doors, and paint.  It is unlikely all these cost increases will be reversed at any point in the future.  In 2007, roofing materials prices increased dramatically, and never at any point have prices returned to previous levels.  While we all would like to hope for reductions in prices, we may need to learn to adapt to a “new normal,” of higher lumber prices for the foreseeable future.

Due to the fast and steep rise in building costs, many buyers are worried that we are in a housing bubble that may soon pop.  Because of the supply and demand factors discussed here, almost all real estate experts today agree that this market is not a housing bubble but is being driven by intrinsic value.  The good news is that even though you will pay more for a new home today than you would have a year ago, it will be worth the additional cost or more in the housing market, making home ownership still one of the best investments available.

Finally, given the current low interest rates, the silver lining on the current economic clouds is that most homebuyers have never enjoyed greater purchasing power.  As much as buyers may want to wait out the high lumber prices to save money on their home, given the low probability of large price drops combined with the possibility of increasing interest rates, now may be the best time to move forward on a new home purchase.  Lower rates today result in much higher purchasing power, even when factoring the increase in material prices.  In other words, you can still purchase more home today in Southwestern Wyoming than at any point in the recent past.  The risks of waiting are that you may not be able to secure a homesite that fits your budget and needs, or that you may get priced out of the market altogether by rising land costs, inflation, and rising interest rates.  Don’t risk missing out on getting into the home you deserve visit our website today to schedule your first appointment and start your new home process today. 


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Author: Nathaniel Lemon