Last year a lot of things changed. Housing was one of them. If you’re in the market for a new home now, no doubt you’ve gotten a taste of what it’s like out there. With low inventory, and the ability to move anywhere from the increase in remote work, the market is tight.
Since prices for existing homes are high, many people are exploring building their own instead of buying another. But, before you jump into building a home in 2021, get a snapshot of the home building market. From there, you can make the best decision about building the home of your dreams.
Why have home building costs gone up?
You probably won’t be surprised to find that, once again, COVID-19 is a big reason behind increased home costs. At the start of the pandemic, lumber mills, like many other businesses, shut down for safety reasons. Those shutdowns slowed the pace of both lumber mill operations within the US and lumber shipping from outside the country. With borders closed and shipping delayed, there was not enough supply generated in the early part of 2020 to last. Many builders also reduced their workload for safety, which meant a slowdown in construction.
Then, add the ability to work remotely, low mortgage rates, and more people moving out of cities into the mix, and you’ve got the perfect storm for high demand and low supply on housing. Virtually every facet of the housing market has been impacted. Building materials, including lumber, have seen all-time high prices.
While lots of demand might sound like a great thing for the construction industry, the reality is many builders spent much of 2020 falling behind trying to keep up with the unprecedented demand. Between low inventory for supplies and some labor shortages from 2020, the timetable for building new homes is slower than expected.
Will things change moving forward?
The good news is yes. Estimates are that as we move out of COVID-19 restrictions and more people are vaccinated, there should be a positive impact on the housing market toward the end of the year and into 2022.
According to the National Association of Home Builders, builders remain confident in the single-family housing outlook. And it appears that lumber prices are starting to tick down from their historic highs earlier this year. Labor shortages are also slowing down. In March 2021, new construction jobs hit levels not seen before the pandemic in February 2020.
All of these factors point to a growth in housing supply moving forward. RedFin predicts that more homes will be built in 2021 than in any year since 2006, the last time we saw a big building boom. That should help the market for new home builders in the coming months and years.
What’s it like to build a home in 2021?
Compared to past years, the process of building a home now isn’t all that different. It might just take longer and, depending on your location, be more expensive than in past years.
An owner-built home typically takes about a year, on average. However, in parts of the country with better weather, such as the South or West, the time frame can be shorter. Nationally, it costs about $300,000 to build a custom home. Of course, depending on where you live, those prices can change. For instance, building in Virginia is cheaper than in Pennsylvania, on average.
Keep those prices in mind, especially if you’re considering building a new home now that you want to keep in retirement. You can get much more bang for your buck in some states, coupled with better weather and attractive tax rates. If you can work remotely now and plan to continue in the future, you have plenty of options to explore.
If you’re considering financing, a construction loan might be a good fit for your needs. Various programs, such as through the FHA and VA, have low rates on loans right now for those who qualify. Once you finish building, you can refinance that construction loan into a mortgage. One significant boost for prospective home builders is mortgage rates are still near historic lows.
Explore your options
While 2020 saw a lot of turbulence, things look to be much smoother by the end of the year and into 2022. That’s good news for getting into the housing market.
Take the time now to decide if building a new home is right for you and your family.
At OVM Financial, we can help. Our experts will guide you through the home building process and answer your questions about financing. Get in touch today.
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