In America one of our most longstanding obsessions is building new homes. Visit any home show or “parade of homes” across the country and you’ll see thousands of attendees lining up for a peak at the latest builds. We’re all drawn to the beauty, craftsmanship and flawless features of a new home. Aspiring to live in the house of our dreams is fun, but for most it can seem a lifetime away.
If you think you’d like to build a home someday, we’ve got news for you. From an economic perspective, the best time to build your new home is today. While there are many personal considerations you should take into account, it might be worth breaking ground sooner than you thought! In this blog post we’ll show you the 7 reasons why you should build a new home today.
LOW INTEREST RATES
While interest rates are beginning to climb from their historic lows in 2016, they are still remarkable. These low rates are unlikely to be sustained over the next 5 years which will greatly impact the long-term cost of your new home. If rates climb by a full percentage point you’d pay over $60,000 in additional interest over 30 years on a $300,000 home.
The low interest rates are effectively even lower due to mortgage tax deduction on your federal income taxes. If you have decent credit you’re likely to have an effective interest rate less than 3%, just slightly higher than inflation.
We’re living in one of the best time periods to finance a home.
With our ever expanding population, land availability across the United States continues to decrease. Especially in large metropolitan areas it’s becoming increasingly difficult to find a lot to build. Lots that do come available are rising rapidly in cost as demand outpaces supply.
As land prices increase one of the trends is smaller lot sizes. In an effort to keep build costs under control developers are making lots smaller than ever before. In respect to land, over the next 10 years you will expect to pay more and get less.
If you’d like to have the best chance of owning your dream lot, availability will never be better than it is today.
LOWER CLOSING COSTS
When realtors involved in a home sale, a portion of the proceeds go their way. This increases the price you pay for a home resale by as up to 7%. When you build a home there is no need to get a realtor involved. If you’re thinking about buying a new home that is being sold through a realtor, you can almost guarantee that you can build the same house for less.
If you choose to build a home without using a general contractor, you can save even more. Eliminating the cost of both a general contractor and realtor could yield savings of 20-25%. On a $300,000 home that’s up to $75,000 that you could save… You could potentially build a $300,000 home for $225,000. While generalizes the situation, the fact is that the opportunity exists to save money on your home build.
For more information on building without a general contractor, read our blog post here.
RISING MATERIALS COST
As developing countries around the world demand have required more construction resources, this has yielded steady increases in the cost of building materials. Over the past 12 months alone, the cost of building materials has risen by more than 12%. Given the limited output capacities of suppliers this is a trend that is unlikely to reverse course.
It’s safe to assume that the cost of materials today will be less than 5 years down the road
IMPROVED ENERGY EFFICIENCY
Building a new home is likely to result in significant energy cost savings compared to a resell. The furnace, air conditioning, appliances, lights, doors and windows are all likely to consume less energy than a home that was built even 5 years ago. A home with the top Energy Star rating could see savings of up to 50%.
Even more immediate cash benefits for energy efficiency can further lower your build cost. While many federal incentives have expired, local incentives and rebates are often available at a state-level or from local energy providers.
One of the remaining federal tax credits that may be worth consideration is the Solar Energy Tax Credit which provides a 30% tax credit for the installation of solar energy systems.
When all of the benefits of energy efficiency are combined, you can expect to offset part of your mortgage by paying less to the utility company.
LOWER MAINTENANCE COSTS
Living in a home that is more than a few years old can bring about a multitude of unexpected expenses. Repairs can quickly add up as your furnace, air conditioner, siding, windows and roof increase in age. Remodeling and cosmetic fixes can quickly snowball into a seemingly endless money pit.
New homes offer a vastly different experience. Everything was designed to fit your life from the onset, meaning you can relax without worrying about the next item on your remodeling list. You can sleep easy at night knowing that warranty coverage protects you if your furnace fails, an appliance breaks or your roof starts to leak.
This isn’t to say that your new home will be maintenance free, there will still be small things that require your attention. The important factor is that the uncertainty of a major financial outlay is albeit eliminated.
The current climate makes building a home more than a personal perk, it’s a smart investment as well. As land and material costs increase, the broader property market is expected to rise at an even faster rate. When combined with low interest rates, it’s a fantastic time to invest in your home. While the average annual returns of 2-6% might not seem like much, it’s actually quite good when you consider that you’re actually living in the appreciating asset.
While there are many powerful economic reasons to kick off your build today, there are countless other personal reasons you must consider. Building a new home is a large undertaking and you’ll want to evaluate your situation extensively before breaking ground. It’s not a decision you can make impulsively. Building a great home requires extensive education, research and planning. It’s not a purchase you can simply return to the store if you don’t like the finished product.
If you believe building a home is an impossibility right now, you can still start planning. You can learn about styles, design and the building process to prepare yourself for when the time is right. As you learn about your home building options and the economics of a new home, you might discover your dream home is closer than you originally thought!