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Why Building a New Home in Oro Valley Still Makes Sense Even with a growing array of homes for sale at lower prices, costs of starting from scratch still work out.
An economist might deem the opportunity cost of building versus buying a house right now to be unacceptably high. And judging from emails I have received, so do some of my readers.
With the U.S. in a housing slump there''s an ever growing array of homes for sale at lower prices. Meanwhile, prices for supplies like steel and nails continue to increase, driven higher by demand from construction in countries like China and India. Rising fuel prices are also pushing up transportation and production costs.
Just last week a house went on the market I would love to buy at a price we could afford. I know this because my husband and I continue to obsessively (though separately and slightly furtively) scan local listings. Yet there is no going back now: The cement for our foundation is poured and framing will start at the end of next week. We are excited to see a year of design work take physical form. We know our house will be better for us because we have had the opportunity to help create it.
BUILD IT OR BUY IT?
Discuss: Would you rather build a home from scratch or move into an existing home?The key to continued sanity for a new homebuilder in the current environment is to think about the future. The country will eventually come out of its current housing slump. And when it does, the cost and the hassle of building will be much higher than now. Just look at what happened in the mid-1990s, when the housing market rebounded from a slowdown, lumber prices almost doubled and contractors didn''t return phone calls.
I feel confident that Portland Ore., where we are building our new house, will come out particularly strong. There is an 80% chance that the metro population will be 3.5 million to 4.1 million by 2060 almost double the 2007 population of 2.2 million -- according to Portland State University''s Center for Population Studies.
While the cost of building a new home continues to increase up 2.4% in 2007 from 2006, according to the U.S. Bureau of Labor Statistics -- the rate of increase is sharply lower than the 6.4% increase in cost the year before. The same holds true for maintenance and repair: While the costs grew 3.8% in 2007, the rate of increase was less than the 8.0% rise in 2006. When the market picks up again and it will the rate of increase will accelerate again.
Nationally, housing starts are close to what economists think is the bottom: In April 2008, starts were at an annual rate of 1.03 million units, down 32% from a year earlier; single-family starts in April were at a 17-year low. That, coupled with soaring unemployment, means more workers are available. With contractors having fewer opportunities, our job will get more attention. When the market starts to pick up again, that won''t be true.
I have friends who built at the peak of new construction in 2004 and 2005, and who had a hard time finding the project managers assigned to their homes.
Subcontractors were unreliable because they were in such demand. One woman in my neighborhood waited a month to get an asphalt guy to redo her driveway. Another says her contractor was involved in 10 other projects at the time he was building her house. Because of competition, materials had to be backordered far in advance. There were fights over particular slabs of granite, a stone cutter tells me that she would have to meet clients at 8:00 a.m., to make sure they got first dibs on a new shipment.
We haven''t experienced any of this. Work on our house is progressing ahead of schedule, with construction expected to be finished June 5, 2009 two months earlier than estimated.
While prices for materials are still rising overall, some materials are much cheaper than they were just a few years ago and contractors are more confident about negotiating for a better deal. Still, analysts say the minute the housing market picks up again material costs will soar.
Take lumber, which, with framing and siding, makes up a significant portion of a new home. According to a Eugene, Ore., organization called Random Lengths, which publishes weekly price reports for wood products, the most recent price for framing lumber was $238 per thousand square feet that''s compared to $304 a year ago and around $496 in 2004.
Even significantly higher gas prices will have a minimal impact on lumber pricing, says Stuart J. Benway, who analyzes the industry for Standard & Poor''s. Though lumber is transported by trucks, it also relies heavily on trains. And the effect of the decline in housing is larger than the increase in transport costs. Demand for forest products is highly dependent on the construction industry, especially the home construction and remodeling.
Fuel prices have driven some materials sharply higher those that require a lot of energy in production and transportation, says Bernie Markstein, a senior economist at the National Association of Home Builders in Washington. Add to that a growth in world demand from building projects in China and India, and there''s been acceleration in steel, nails, insulation, aluminum, asphalt, concrete, copper and brass fittings.
We will do what we can to adapt: We can avoid all copper and brass fixtures and plumbing and try to reduce the amount of asphalt we use. But there are still some bright spots. Prices for ceramic floor and wall tiles actually fell 0.2% in 2007 from a year earlier. Maybe we should tile the guest bathroom after all
Send me your comments to iandwight@orovalleyrealestate.com |
