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New Home Construction Cost Increases

As if 2020 wasn’t challenging enough, home builders are seeing new home construction cost increases during the peak season this year. With as much as an 80 percent increase in the cost of lumber over the last four months*.

While the cost of new homes has risen gradually over the last few years, a recent spike in softwood lumber prices has caused an increase of over $16,000 to the average single-family home in just a few months. As of July 2020, the national median home price surpassed $300,000 for the first time ever.

Quickly rising costs and supply chain shortages for lumber and other building materials combined with economic uncertainty because of the coronavirus pandemic might seem like the recipe for a major slowdown in the housing marketing, however 2020 is not a typical year. Pent-up buyer demand coupled with historically low interest rates and limited inventory have combined to create heavy competition for homebuyers hoping to lock-in a low fixed-rate mortgage on a new home.

The NAHB/Wells Fargo Housing Index, which measures home builder confidence, hit an all-time high of 78 in August 2020. That confidence is bolstered by the fact that the supply of new home inventory is currently very low.

Historically low interest rates

According to a July CNN Business article, “The average 30-year fixed-rate mortgage fell to a record low of 2.98% this past week, according to Freddie Mac. That’s the lowest level in the nearly 50 years of the mortgage giant’s survey. The 15-year fixed-rate mortgage dropped to 2.48%.”

Between historically low interest rates and limited inventory on the market, many Realtors and Builders are seeing homebuyers in bidding wars to try and secure a new home even with the new home construction cost increases that have occurred over the last four months.

The price of lumber

*According to a recent NHAB article, … by the time Random Lengths reported prices on Aug. 21, the cost to builders had risen to $30,470 for the softwood lumber products in an average single-family home, and $11,061 for the products in an average multifamily home. This is a $13,543 (80%) and $5,122 (86%) increase respectively, in only four months.

The sudden spike in lumber prices coupled with the supply chain slowdowns and interruptions because of the coronavirus pandemic have increased the cost and time to build new homes. This has resulted in available inventory on the market shrinking to a three-month supply.

Other Factors Limiting New Home Inventory

Shortage of buildable lots and increased land prices

The lack of buildable lots is one of the largest issues facing home builders and one of the reasons that new home inventory is not keeping up with demand. Many builders don’t have the resources to develop their own land and depend on large developers to create buildable lots. This has created a backlog and increased the cost of new lots.

Increased regulatory costs

Local land use policies have made it more difficult to develop buildable lots and increased regulations have made the lots more expensive. This is leading to smaller lots and homes with higher costs that can make it difficult for builders to deliver new homes at a price the market can bear.

Shortage of Skilled Labor

With approximately 300,000 unfilled construction jobs as of June 2020, new home production has been greatly constrained which is another factor preventing home builders from meeting the demand for new homes. When the recession hit in 2008, many workers left the construction industry for other careers. Fewer young people are interested in construction related careers these days with parents steering them toward technology and white-collar careers.

Conclusion

Even with new home construction cost increases and limited new home inventory, the real estate market is experiencing a buyer’s frenzy this summer as homebuyers look to lock-in a low interest mortgage on a new home.

It is unlikely that new home prices will go down anytime soon, if ever, but the mortgage interest rates will eventually go up. That makes this a great time to buy a new home, even if they are getting harder to find.

More Info

For more information about McKee Homes communities, floorplans and quick move-in homes, please use the form below, our website contact us page, or give us a call at 910-672-7296 to talk with one of our friendly New Home Specialists.

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Cost of Custom Homes Vs Personalized Production Homes

If you are considering the purchase of a new home, the cost of new homes is one of the first considerations to look at.  When trying to decide whether to buy a custom home or a personalized production home, there are very distinct differences between a custom home and a production home; therefore, you should spend some time learning the specific details of each before you make any decisions. Some of the questions you will need to have answered are:

Cost: What is the square foot cost for each type of home?

Time to Build: How long does it take to build each type of home?

Pros/Cons: What are the advantages and disadvantages of each type of home?

Options and Selections: What options and selections will you get to choose?

Warranty: What level of new home warranty should you expect with each type of home?

Touch Points: How much personalized service will you get from each type of builder?

Learning everything you can about the different types of new homes selections available will allow you to make a more educated decision about which option is best for you and your family.

This article will focus on cost of custom homes vs personalized production homes. Please read our series of articles on this topic for more information and answers to the above questions.

Cost of New Homes – Custom Homes

When building a custom home, you generally acquire your own land, design your own floorplan (or have it designed) and submit it to the builder. Additionally, you will be directly involved in the planning and development of every aspect of your new home.

It’s extremely hard to determine the cost per square foot for a custom home because there are so many variables. But as a general rule, a custom-built home will cost you twice as much as a personalized production home. And the land cost is usually not included in that figure. You can expect the cost of a new home to average between $150 and $400 per square foot depending on which part of the country you are building in.

Hiring an architect to design a custom home will generally cost between 2-15 percent of the total construction costs, however the architect, or a representative from their firm, will usually oversee the project to make sure everything is done correctly.

It is possible to buy home plans online for less than $2,000 but it’s a good idea to pay an architect an hourly fee to review the plans before using them make sure they will work on your building site and meet the local planning and building department codes.

You will also need to pay for a building permit for your home which can add several thousand to tens of thousands of dollars to the building costs depending on the region where you are building. Most custom home builders will include this cost in their contract, but it’s important to verify this to avoid unexpected costs for your project.

Additionally, custom homes often cost more to build than the final appraisal amount, requiring a significant cash down payment by the homebuyer in order to procure a mortgage on the home.

Cost of New Homes – Personalized Production Homes

When having a personalized production home built, it’s customary for the home and land to be offered as a package deal. You will have the ability to choose from a variety of home floorplans and new home options; therefore, with a personalized production home, you will still have the opportunity to customize your home to a certain extent.

A personalized production home is a great option for those who want to customize their new home but don’t want the expense of having a custom home built. Or spending the time and hassle of trying to find just the right piece of land, at the right price, in a convenient location.

Just like a custom-built home, the cost per square foot for a personalized production home can vary widely depending on the home’s variables. However, with a production home, you won’t be paying separate costs for the land and for the home. The average cost per square foot of a production home can range between $80 and $120 or more depending on the builder, the location and the quality of materials being used.

Production homes builders offer a variety of floor plans to choose from, so there is no additional cost for plans or architects. All of the floor plans have been built many times before so there won’t be any surprises or design problems as often happens with custom homes. Production builders have their floor plans modified to meet building codes for each region and neighborhood they build in, so all of the planning has been taken care of in advance. The building permit and all fees are paid by the builder and included in the cost of the home.

Additionally, production homes are priced to meet comparable homes in the area and therefore generally appraise at or above the offered price.

The Bottom Line

The decision about whether to buy a custom home or a personalized production home is a very personal one and one only you can make. You should take as much time as you need to study all your options, and then will you be able to make the decision that is right for you and your family.

If you find yourself torn about which direction to take, you may want to visit some personalized production home builder locations to get a feel for what they have to offer. If after that you don’t find anything that suits your needs, you can always contact a custom home builder to compare the costs and options they have available.