Should I Wait to Build a New Home?

The big question of the year for many home buyers wanting to build their dream home is, “Is it better to wait to build?”  There is not a right answer that will fit everyone’s circumstances, but the one thing that is almost certain is, there is little chance you will see pricing that is significantly lower than what it is now if you do wait.  In fact, based on what we do know, even in times of market correction we have not seen the cost to build a home go down due to inflation.  

So, what can a buyer do to protect themselves?  The one thing we have seen over the past year is language that builders have added to their contracts to mitigate the risk for them if pricing does go up.  For the most part, these changes protect both parties and gives a way out of the contract for either side if volatile pricing and/or delays no longer make the build viable for one or both parties.  However, it is important to understand that not all of the language is written the same, and even in cases where it may be almost identical, the end result is not always the same.

One reason for this over the past year was a home builders market knowledge and ability to forecast price increases ahead of time.  Of course, nobody had a crystal ball to predict how 2021 was going to play out, but those watching market indicators were on top of at least a portion of the price increases before they happened and in turn did not have to pass those big increases on to their buyers.  Another significant issue has been the extended build times.  It is impossible to account for what a house is going to cost if you can’t start it for a number of months out and sometimes close to a year due to current build commitments.  So, for those home buyers that were waiting months for their home to start were now faced with the possibility of more significant costs passed on to them.

So, what can you do to protect yourself if you decide to build a new home now?

1). Ask questions of your builder/builder agent rep.  Also, make sure these answers are in writing. 

• What is their escalation/contingency clause?
• What is their current build time frame and how long will it be before they can even start your home?  This won't be an exact date but at least a general idea of timeframes based on current commitments and recent build times.  
• How often did they pass costs on to a buyer in 2021?
• Do they see any increased construction costs in the foreseeable future? (their answer should be yes or they’re not paying attention to the market) 
• When is the last time they increased their pricing? (if their answer is months ago then that should be a warning sign as well)

2).  Be sure to plan out every detail of your new home build from the beginning before you go to contract so that everything is accounted for when pricing your home.

3). Decide what your budget is and be sure you stay under that to account for any price increases. Depending on what your budget is try to stay 2-5% of the overall cost under that.

4). Have a back-up plan if things don’t work out so you do not feel forced to make a decision you do not want to.

There are plenty of reasons to be excited about building a custom home. If you are ready, willing, and able to build your forever home then now is the best time to do it. It's rare in new construction that costs decrease, interest rate costs are low, and the time you have to enjoy your forever home is limited, so for most people, it doesn't make sense to wait.