The misses and I are thinking about building a new house. Everywhere I look I see costs are way up. Concrete up 50%, plywood nearly double, etc. And it got me wondering; How much more would you pay for the same house built 2 years ago? I have contacted a couple of my local builders and gotten answers in the 10-25% range. Would now be a bad time to build? How could I help mitigate these expenses?
Just how bad is it out there?
Replies
Would now be a bad time to build?
How long do you think you will have to wait until prices come down?
"When asked if you can do something, tell'em "Why certainly I can", then get busy and find a way to do it." T. Roosevelt
I guess ultimately THAT is what I'm asking. How long do expect this to go on;6 months, a year, more?
I'm really looking for info so we can decide if we can wait or not.
While material costs may be up, construction loan interests rates are still pretty low, but slowly rising.
And in my area, lot and land prices have been increasing, for probably the long-term, at a more serious pace than mat'ls.
So the the long term risk of waiting for mat'l costs to level out or drop may end up costing you more over the life of the mortgage.
Those mat'ls such as solid wood and sheet goods and concrete and steel and roofing, while up somewhat, really don't constitute the major cost of a new home. It's the tile and cabinets and trim and fixtures and windows and doors and floor coverings and such that really elevate the cost of a house.
Biggest problem around here would be: where? Land prices are skyrocketing and dwarf material cost increases. Delaying land purchase could be catastrophic. We're closing in on a $300k median house price, rising fast in large part due to land. And this is a rural area.
Increases in house cost will depend in great part on what you build. The major cost is labor. If you plan intelligently, you won't find material cost increases so difficult to swallow. Then there's the money cost, which will far outweigh any material cost increases. It's your gamble on which way mortgage costs are heading in your timeframe.
PAHS Designer/Builder- Bury it!
construction costs will continue to increase.. a lot
wages may stabilize or fall..
but the real opportunity is going to be when EXISTING home prices start to nosedive... and they will.. so fast and so far you will not believe it
but the real opportunity is going to be when EXISTING home prices start to nosedive... and they will.. so fast and so far you will not believe it
Care to elaborate on that?
Guy I'm cutting the driveway for has a similar thought. He's a realtor who's seeing what he considers incredible over-extension by young borrowers counting on rapid inflation continuing. I'm seeing the large number of high-paying jobs being created here and wonder what the balance will be. Or if it will be.
Then there's the Stones' concert in a couple of days, which apparently is bringing in an amazing amount of money to our area.PAHS Designer/Builder- Bury it!
some areas will be affected less than others.. the DC area will continue to need and support govt workers but govt subcontractors are going to lose contracts in downsizing
the new bankruptcy /credit card laws are going to kick in.. minimum payments will DOUBLE, that, on top of higher energy costs are going to put the paycheck -to-paycheck people into default
not only are people going to stop buying , but lots are going to try to dump their houses to avoid foreclosure
then the spec builders and the developments are going to eat their product
some areas that had big run-ups are going to fall off a cliff, lot's of people will be upside-down fast..
new car sales will plummet...
discretionary spending will cease...
all of this happened in the late '80's and early '90's... the country was a lot stronger then, and the bubble was the stock market
now, the bubble is home equity...... get ready for armageddon....
could i be wrong ? maybe... but what is the alternative ... galloping inflation ?
it already is...govt CPI says 5% ? do you believe that ? i'm not alone in thinking hte true number has been 8% for quite some time.... the only thing that is masking the true inflation is wages... they are not going upMike Smith Rhode Island : Design / Build / Repair / Restore
Mike, you remind me of a book I read in the late eighties about the impending economic doom predicted by the book's author for the ninties. He missed it by a mile, no, several miles, and you are too.
The American economy isi n pretty darn good shape no matter how you care to measure it. The world economy is getting better all the time. One must be prudent, but neither can one live in paralyzing fear also.
"One must be prudent, but neither can one live in paralyzing fear also."
Well said.
I've been hearing that the economy is about to collapse since 1994. I get pretty tired of it.
The danger to a free society is not the guns owned by the citizens but an unconstrained government . . . An armed society is a self-governing society, just as a disarmed people are vulnerable to arbitrary power of every kind. [Llewellyn H. Rockwell, Jr.]
boss...why don't you ask blue how things are looking in detroit and the 'burbs ?Mike Smith Rhode Island : Design / Build / Repair / Restore
"why don't you ask blue how things are looking in detroit and the 'burbs ?"
Naw -Every time Blue and I talk it seems to degenerate into a bitch session about trusses.
He might tell me something like "bite me".
(-:
Whenever I feel blue, I start breathing again.
Economists have successfully predicted 6 of the last 3 recessions. . . .
oh, really ?....
and what are housing sales doing in your area ?
and do you happen to know the effects of the new bankruptcy laws ?
add in the record deficit spending... the cost of supporting a $445 billion dollar military ..
and it sure sounds like guns and butter to me...
tell me..... what did your book written in the '80's say about the effects of the '70's ?
was it an aberation ?
i'm no "doom & gloom " guy.. but i have survived 3 recessions since i went in business in '73....
and i don't need a weatherman to tell which way the wind blowsMike Smith Rhode Island : Design / Build / Repair / Restore
I got this from a blog, but it's worth repeating here:
Unemployment has been at 5% for 23 years, and inflation 5% or less -- and we bitch about the terrible economy. We freak at a war that claims 3 lives a day and maybe 6-8% of the Federal budget -- our grandfathers who fought in Okinawa would be ashamed of us. A huge hurricane roars ashore in the Gulf Coast and -- mirabile dictu -- not more than probably a few hundred people are killed, and generally speaking most everyone is being helped and is OK within a week or so, despite the enormous destructive force. But, oh dear, that's some monstrous failure at which fingers must be pointed. Eh, I tell you, any of our ancestors would be ashamed of our squeaky weeniedom. They hacked out a country from wilderness, natural and human, and wrestled with awful terrible questions, from freeing ourselves from slavery and struggling to erase its lingering consequences, to beating back the poison of fascism of the left and the right across half the civilized world. *And* they went to the Moon, discovered penicillin and heart transplants, invented transistors and sliced bread. Well, I lied about that last one... What are we leaving our children? What are we daring? Why would anyone a hundred years hence consider calling us a Great Generation? As opposed to one of the most spoiled and whiny generations of Americans ever? I'm hard pressed to say.
kowboy..
<<<Unemployment has been at 5% for 23 years, and inflation 5% or less -- and we bitch about the terrible economy. We freak at a war that claims 3 lives a day and maybe 6-8% of the Federal budget -- our grandfathers who fought in Okinawa would be ashamed of us. A huge hurricane roars ashore in the Gulf Coast and -- mirabile dictu -- not more than probably a few hundred people are killed, and generally speaking most everyone is being helped and is OK within a week or so, despite the enormous destructive force. But, oh dear, that's some monstrous failure at which fingers must be pointed>>>>
BS.....
who wrote that , Karl Rove ?
hah, hah, hah...
as for grampa... while he was fighting in Oki... grandma was doing her part on the home front... how much sacrifice are we making for this phony war ?
and you still didn't tell me nuttin about the effect the '70's had on our economy
our economy didn't really recover until the mid-'90's after the deficit reduction act had a chance to kick in..
now it's 5 years of surplus to deficit.. with no end in sight... dream on if you think we really can dodge the recession bulletMike Smith Rhode Island : Design / Build / Repair / Restore
i just read this link...
things like this are happening all over the US.. and when the new bankruptcy law kicks in , it's going to accelerate
http://moneycentral.msn.com/content/P131154.asp?Rating=10&PageID=131154#RatingMike Smith Rhode Island : Design / Build / Repair / Restore
Mike:
You can't tax or legislate your way to prosperity, ot the liberals would have us living in Utopia by now.
I don't think the econonomy of the seventies is relevant to us now, other than to learn from history, which is why I haven't responded sooner.
It wasn't the defecit recovery act that helped the ninties boom, it was the booming economy and the subsequent rise in tax revenue. Which, by the way, is happening again. There was never any "surplus", that was wishful thinking.
> and when the new bankruptcy law kicks in , it's going to accelerate
How does that work? I thought the new law was supposed to make it harder to get a bankruptcy. Or is it that people will decide to do it before the deadline, creating a rush?
-- J.S.
well, couple things... it will be harder to go chapter 7.. so debts will not be wiped out..
before , lot's of bankruptcies could salvage the home.. now it will be harder.. they will still have to service all of their debt.. something will have to give.. and foreclosures will increase
also.. coincidentally... the minimum credit card payment will go from 2% to 4%.. and late payments can invoke up to ....... 30% interest
we used to have usury laws.. now it will be cheaper to deal with loan sharks..
people on the edge will get pushed over the edge...
Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike, how do you project your view of the future onto the second-home market?
Where I am, the great majority of real estate being sold, and new homes being built, consists of Adirondack-great-camp-style weekend homes for people mostly from downstate NY and northern NJ.
The parts that have slowed way down are sales of existing, and sales of newly built specs.
well, where you are (upstate NY ? ) are the natives trying to cash out ?
is there a lot of unsold inventory ?
2d homes are discretionary purchases.. those sales disappear first..
in other areas, one plant closing.. or one military base shut-down can turn the market down over night
do you remember what happened in the Lake Placid area at the end of their boom ? Mike Smith Rhode Island : Design / Build / Repair / Restore
Excellent post Kowboy! (even if you did just cut 'n paste from a blog)
I agree completely about how we've managed to come through some pretty huge potential disasters with unimaginably small losses of life, and aid coming in at warp speed, and yet all you hear on the news is lots of whiny little whiners whining about how the government didn't do enough.
Frankly I'm embarrased to belong to this generation. You're right. What have we done or produced for the annals of history? what hardships have we endured?
" I had to wait through three stoplight cycles on my way to starbucks today! And then they were out of tibetan yak's milk for my double decaff latte' , It was awful!"
There was a primetime t.v. series a few years ago, I forget the name of it. It was set in the not-too-distant future, and some sort of a magnetic pulse had erased all of the computers in the world, basically punting society back about 40 years. Perhaps we need something along those lines to give us a good ol' fashioned kick in the butt.
" If I were a carpenter"
don't know about armageddon, but ...The local newspaper here is reporting how Ohio leads all states in the country right now for # of home foreclosures. We have more than anybody. Houses are still popping up like mushrooms after a heavy rain (and one of the worst offenders is a local spec home company that's defaulting on dozens of homes in the same subdivision that they're still building and selling them in).My wife took our oldest son to a playdate in that same subdivision a week ago. They printed a site plan in the newspaper of the area with the plots marked in red up for sheriff's auctions, bank repossessions, etc.. Looked like a minefield around their home. A single mom and her 4-year old son. She was thinking about selling in the near future, too. She'd be lucky to get half for it right now.To be fair, a big reason for it is Ohio's lax laws controlling lending (unlike most states). But there is something to the rise in foreclosures. And I don't see it slowing down anytime soon.(part of this reprinted from an earlier post)
Just curious as to how lax laws RE: lending is leading to foreclosures.
Foreclosures occur when people can't or don't pay off their mortgages. (like you didn't know that). Why is it the governments responsibility to make sure we don't overextend ourselves?
Unfortunately, our society is now conditioned to believe that the gov't is supposed to ensure that I never make a bad decision. The more protection we give to people who make poor choices (like the gov't providing cheap flood insurance in flood prone areas), the more people are inclined to take proper care for themselves.
Wish I had the newspaper article here.The laws (as I seem to remember, brain's slipping in it's belt) aren't to back up someone's foreclosure, but to insure against bad loans/predatory lending. Ohio is one of only 3 states that doesn't have consumer laws for bad mortgages. The quote I seem to remember is that you have more government protection buying a t.v. at an appliance store, rather than getting a $150,000 mortgage.I can try to get the exact information if you want. And I agree with you're comments about the government not being responsible for everybody's bad decisions.It wasn't a bailout, though, but something to reduce the amount of foreclosures from happening in the first place.
Even so, laws against "predeatory lending" or "bad loans" are the government taking over people's personal decisions.
Do predatory lenders force people to take out their loans? Do lenders force potential borrowers to take out interest only loans or high LTV mortgages?
Fraud is one thing, but again, why should the government protect supposed adults from making poor choices in their lives? What incentive is there for people to make wiser choices if the government is there to make the decisions for them or bail them out when they make a wrong move?
Fraud: a deliberate deception perpetrated for unlawful or unfair gain.Predatory loans are fraud.The government should have some rights to keep criminals from committing crimes (don't see this as infringing on anybody's personal freedoms).or to put it another way . . .Should the police not stop a thief from going through somebody's open window, even though it was a poor decision to leave it open?
How are "predatory" loans fraud? The Truth In Lending Act requires documentation for everything. Again, why is it the governments fault if people a) don't read the fine print or b) people sign up for loans that they are unable to pay back.
What makes a loan predatory anyway? No one forces people to take the loan.
How are "predatory" loans fraud?
They're fraudulent in part because the predatory lenders make such loans knowing they're quite unlikely to be repaid. It's a scam. They engage in deceptive marketing, They take unfair advantage of those who are less educated or otherwise unable to realize they're being had - the poor, the elderly. They also do things like charge pre-payment fees on subprime loans - thus, when someone takes care of their business and improves their credit, they actually are penalized for refinancing.
The Truth In Lending Act requires documentation for everything.
You're a bit naive, aren't you? Do you think that a dishonest lender or mortgage broker is going to be forthcoming about how they're screwing someone? If you do, I've got some lovely Louisiana swampland I'd like to sell you. And really, why do we need a TIL Act, when we know everyone is thoroughly honest in the lending business, right?
Again, why is it the governments fault if people a) don't read the fine print or b) people sign up for loans that they are unable to pay back.
What makes a loan predatory anyway? No one forces people to take the loan.
You know the irony? Oftentimes, the people who are taking these loans actually qualify for better loans, rather than the subprime paper they're being sold.
Jason
I'm not being naive. I know that lenders (as in every industry) don't tell the whole story. Name one industry that will lay out problems with their product. TILA requires documentation & the lenders provide it.
I'm sure your right that often people qualify for much better loans than they are being offered. Why is it up to the gov't to do your homework for you? Borrowing money isn't something that should be taken likely & unfortunately it along with many aspects of life are because we've come to expect Uncle Sam to rescue us from foolhardy choices.
I spent most of the 90's digging my way out of a financial hole. I didn't blame the credit card companies for my huge debt - I'm the one who signed up & borrowed the money & made stupid financial decisions. Would I like that decade of my life back? For sure, but it's not the government's fault or role to make sure I don't make stupid financial decisions.
> Do lenders force potential borrowers to take out interest only loans ....
Around here, interest only loans seem to be what the market came up with as a remedy for the excesses of rent control. Instead of renting an apartment, you basically just "rent" the money and buy a condo. You don't get to bug the bank about the bugs brought in by the slob next door. ;-)
-- J.S.
can't or don't pay off their mortgages ... Why is it the governments responsibility to make sure we don't overextend ourselves?
Perhaps if they did not offer the illusory "carrot" of mortgage interest deduction from the tax bill? To get the most out of the deduction, you really need to buy at whatever max mortgage you can get, so that the interest payment is high enough to actually deduct.
Occupational hazard of my occupation not being around (sorry Bubba)
"To get the most out of the deduction, you really need to buy at whatever max mortgage you can get, so that the interest payment is high enough to actually deduct"
If someone takes out a large mortgage because of the tax deduction, then again, they aren't making a wise choice. Why on earth would it be beneficial to pay an extra dollar of interest to save $0.25 on your tax bill?
Again, people make their own choices, & the government shouldn't be in the job of protecting people from their own choices.
The thief & window comparison makes no sense. So called "predatory lenders" lay out everything in print & the borrowers agree to the terms of their own volition. The homeowner didn't ask the thief to come in & take his stuff.
Mike,
I concur with you that from what I'm seeing out here in the rarified real estate market of the Hamptons. There seems to be this feeling of foreboding looming over the real estate market, even though the realtors are ever optimistic, a lot of people seem to think the decline is right around the corner and there seems to be more houses for sale than usual at this time of year.
The market's still hot here in LA. The little 850 sf dump we bought in '01 for $185k and sold in '03 for $385k has just flipped again, north of $500k. The place I bought in Hollywood in '98 for $345k I have listed at $999k, and got an offer of $925k. Of course the smaller Valley house that will replace it is also ridiculously high at $730k.
The problem is, no matter what the market, you gotta live someplace. There's not much choice but to ride it up and down.
-- J.S.
Similar story here. 900 sf simple ranches that sold for 200 -250K in 2000, Are selling for 550 - 600K now, but starting to level off if not fall.
There seems to be this feeling of foreboding looming over the real estate market, even though the realtors are ever optimistic, a lot of people seem to think the decline is right around the corner and there seems to be more houses for sale than usual at this time of year.
I just so happen to be a realtor in someplace very far from the Hamptons - Omaha, NE to be exact. More than a wee bit of foreboding around these parts, too, despite the fact that housing isn't anywhere near overvalued. According to a recent survey by some big stats outfit, there are 60% more homes on the market here right now than the same time last year. As it stands right now, there's about 5 months' inventory on the market.
Great time to be buying a home - bad time to be selling.
Jason
this time last year there were 27 homes on the market...now there are 57...
the highly motivated sellers are reducing their prices until they get an offerMike Smith Rhode Island : Design / Build / Repair / Restore
There's no way to know when material prices will go down or up.
For instance - When will the next hurricane be?
What will the economy be like next year?
Is there going to be a major fire at a plywoiod mill next year that will cause prices to skyrocket? Or will someone expand their production and flood the market, so prices will drop?
Will there be a flood of wood into the mills down south that will cause SYP prices to drop?
The general trend in prices is UP, not down. So the sooner you build the better off you'll be.
The only suggestion I can offer is that lumber and ply prioces tend to drop during the first quarter. And builders in some parts of the country are slow due to the weather, so they may be hungry for work and try to work on tighter margins.
But you have to be ready to *GO* in February, and not wait until everyone else goes in April. (At least around here that seems to be the case)
Only way I know to mitigate any costs is to do as much of the work yourself as you can. May have the framing and siding done and then do the interior yourself - having any electrical and plumbing you are not qualified/able to do done by a sub-contractor.
Doing yourself will take a lot longer - comes down to time vs. money vs. quality
http://www.breitbart.com/news/2005/10/03/D8D0JUO80.html" Construction spending climbed to a record high in August, helped by a renewed boom in housing. Even bigger gains are expected in coming months, spurred by the massive rebuilding required in the wake of hurricanes Katrina and Rita.The Commerce Department said Monday that total August spending rose by 0.4 percent, the biggest increase in three months. It pushed building activity to an all-time high of $1.11 trillion at a seasonally adjusted annual rate. "" Private residential construction posted a 0.2 percent increase in August to $614.6 billion after having shown no gain in July and posting a sizable 0.4 percent drop in June.Analysts had been expecting home building to cool a bit as mortgage rates continue to rise. The rate for 30-year mortgages hit a five- month high of 5.91 percent last week, according to Freddie Mac's nationwide survey.Analysts believe that sales of both new and existing homes will set records this year for a fifth straight year but they are forecasting a slight decline in sales activity in 2006 based on expectations that mortgage rates will continue to climb.The slowdown in building activity will be offset somewhat by the need to rebuild homes in the Gulf Coast states of Louisiana, Mississippi, Alabama and Texas. "
bill, here is what blue has to say to that ...
http://forums.taunton.com/tp-breaktime/messages?msg=64017.1Mike Smith Rhode Island : Design / Build / Repair / Restore
Would now be a bad time to build?
No. It's almost always better to build now than later. It's jsut like buying a house. Even if the local market swings from sellers to buyers, or vice versa, "now" is almost always the right time to buy an asset.
Is there risk? Sure, anytime you buy an asset there's a measure of risk.
Is there some possibility that your dream house could be uilt for cheaper down the road? Maybe. But, even back 7-8 years ago in a deflationary financial cycle, real costs still "acted like" they were inflationary, and went up.
So, like as not, a house will be more expensive next year than now. That's probably true for 6 months from now, too (might be worse, actually, depending on how fuel costs translate into the rest of the economy).
If you have the funds now, though, now's the time to build, if building is what you want to do. Otherwise, you are left with the choice of continuing to live in your present, possibly less-than dream house.
But that's my read, others differ.