Will it be cheaper to build in a few years?
Are you waiting for prices to drop before you build your dream home? If so, there is a good chance that home prices will only be higher when you decide you want to build.
Historically, construction costs and home prices do not drop very often. At Cypress Homes, we aren't bold enough to try to predict the future of interest rates or construction costs, but looking at our 25 year history it's pretty easy to see home costs tend to go up over time.
But you don't need to just take our word for it, take a look at what US Census Bureau's data shows. The chart below shows the median sales price of houses sold in the United States. You can see that 2008-2010 did result in prices dropping, however that price drop appears to be quite the rarity; Dating back to the 70's, 2005-2007 appears to be the only time frame where waiting a few years would have been a smart move (assuming your goal is to buy when prices are lower than they are now).
How Expensive is building right Now?
One thing we do know is what it costs to build a home right now. We build a wide variety of homes every year; ranging in size, style and materials used. Through our detailed bidding process, we are able to estimate the cost for building a home very accurately. If you're interested in receiving a building cost estimate, just contact us.
The second major factor in determining the cost of building are interest/mortgage rates. At the time of this article is being written Bankrate lists the 30-Year Fixed Rate Mortgage at 3.66% (11/27/2019). This is much lower than the historical average of 8.08% (since 1971 according to ValuePenguin).
Let's compare the total cost of a home at today's rate of 3.66% compared to a 5% interest rate.
A 30 year mortgage at a 3.66% interest rate on a $375,000 home would put your payments at $1,718 per month. The total cost of the mortgage over 30 years would come to $618,332.
A 30 year mortgage at a 5% interest rate on a $375,000 home would require monthly payments of $2,013. The total cost of the mortgage would come to $724,709.
Screenshots above taken from Google's mortgage calculator.
So if interest rates were to rise from 3.66% to 5%, you'd have to pay an additional $295 per month for the same $375,000 home. That adds more than $100,000 in mortgage costs over 30 years!
Home construction costs can change over time, but don't forget that a slight change in interest rates can also have a big impact in the total cost of your home.
Considering the historically low interest rates, now may be the perfect time to build a home!
Is Building More Expensive than buying an existing home?
On the surface, building is definitely more expensive than buying an existing home. But when comparing the price of building a home versus buying an existing home, you need to look beyond just the initial sale price. It is important to factor in future maintenance costs, energy costs, and remodeling costs. These additional costs will likely be significantly higher with an existing home. We have more information on this in a post titled "Building Vs Buying an Existing Home."
Ultimately, you need to decide what's right for you. If you have questions, we are happy to help. If you want more info on the home building process, we put together the "4 Step Guide to Home-Building." Request your copy here:
Categorised in: Cypress Homes
This post was written by Brock Messner