Remember the predictions that were made about a housing crash coming when the Covid-19 pandemic first hit in 2020? Did that happen? Obviously not! In fact, the complete opposite happened. There is a boom in the housing market.
Why do I bring this up? Because as much as people would like to predict the future, they can’t. They try to guess what will happen, and sometimes they get close. But none of us knows for certain what the future holds until it happens.
With that in mind, this article is not to predict the future for you and the outcome of your home build. But, instead, it will consider some reasons as to why it’s still a good idea to build a new home, despite problems in the home building industry, like price increases and shortages of materials and labor.
Low Mortgage Interest Rates Make New Home Building Worth It
Mortgage interest rates are at all time lows in 2021. The average interest rate on July 29 was 2.8% on a 30-year fixed-rate loan. When you have a mortgage on a new construction home with a loan at this low rate, you will save a significant amount of money over time compared to a higher rate.
Below, I have a table of the 30-year mortgage rates from 2008 to 2019. As you can see, the average rate ranged from 3.65% to 6.03%. The highest average rate at 6.03% is a big difference from today’s 2.8%.
30-year mortgages rates from 2008 to 2019
| Year | Lowest Rate | Highest Rate | Average Rate |
|---|---|---|---|
| 2019 | 3.63% | 5.34% | 4.25% |
| 2018 | 3.95% | 4.94% | 4.54% |
| 2017 | 3.78% | 4.30% | 3.99% |
| 2016 | 3.41% | 4.32% | 3.65% |
| 2015 | 3.59% | 4.09% | 3.85% |
| 2014 | 3.80% | 4.53% | 4.17% |
| 2013 | 3.34% | 4.58% | 3.98% |
| 2012 | 3.31% | 4.08% | 3.66% |
| 2011 | 3.91% | 5.05% | 4.45% |
| 2010 | 4.17% | 5.21% | 4.69% |
| 2009 | 4.71% | 5.59% | 5.04% |
| 2008 | 5.10% | 6.63% | 6.03% |
New Construction Home Loan Comparison
So, let’s do an example of a 30 year new construction home loan comparison to see how interest rates affect your payments. The table and graph below shows the monthly payments of a $300,000 loan at 3%, 4%, and 5% interest.
30 year Loan Comparison
| Loan 1 | Loan 2 | Loan 3 | |
| Loan amount | $300,000 | $300,000 | $300,000 |
| Loan term | 30 years | 30 years | 30 years |
| Annual percentage rate (APR) | 3% | 4% | 5% |
| Monthly loan payment | $1,264.81 | $1,432.25 | $1,610.46 |
Monthly Payments
The difference between a 3% and 4% payment is $167 a month. That’s $2,004 more each year and $60,120 more over 30 years.
The difference between a 3% and 5% payment is $345 a month. That’s $4,140 more each year and $124,000 more over 30 years.
I don’t know about you, but that makes me realize the importance of getting a low interest rate, if at all possible.
Lumber Prices are Going Down on Home Builds
A lot of new construction home buyers, owner-builders, and builders decided to put off building new homes because lumber was out of control.
Here were the problems. Lumber prices were 3 times higher than a year ago. And if that wasn’t bad enough, it was uncertain how much higher they would go when it came time to purchase the lumber for the build. Then on top of that there was a shortage of it. So, all these factors caused people to put on the brakes to building new homes.
The good news is that lumber futures have dropped significantly. And, now some lumber companies are starting to reflect this in their pricing. I have seen 2 cases where lumber bids have dropped significantly. One was $24,000 drop, and the other was $50,000.
Lumber is a commodity, so it’s hard to say what the pricing will do in the future. As a commodity, many people believed the price would fall, as it has. But how far will it go down, or how long will it stay down? Time will tell.
A New Construction Home has a Resale Advantage
Almost any house, new or old, is an investment. You buy it with the hope of it appreciating in value over time. But a new construction home gives you an advantage over older homes when it comes time to sell. How?
Well, with anything in this world that is bought and sold, the pricing of an item and how fast it sells is based on supply and demand. And the same principle applies to the market of newer and older homes.
Here’s the principal in action. People love to have newer, up-to-date homes over older, dated ones. And, in the housing market you have a range of ages of homes for sale, from new to old. But there’s only a small amount of newer homes available, compared to the vast amount of old ones. What happens when home buyers are shopping? They buy the newer homes first and are willing to pay a premium for them. This means a newer house will sell faster and will command more money than the older homes.
Building a Home Reduces Your Competition in a Sellers Market
In a sellers market, there are not enough houses to go around to all the buyers. But you can eliminate your competition, or at least reduce it, by building your own home.
This is especially true if you buy your own lot or land and build on it, because you are producing your own home. (You would be the owner-builder in this scenario.) So, you are not relying on someone else to sell you a house. It’s all on your terms. You buy the property and build on it.
Many owner-builders do teardown and custom home builds when building on their own property. It gives so much flexibility and control. So, if you’re looking to have your house in a particular location or to have it highly customized, then definitely consider these 2 options.
Everything is New, No Updating Costs, No Big Unexpected Maintenance Expenses for Years
In my opinion, there’s nothing better than enjoying a brand new home. Why is it better to build a new home you may ask? You don’t have to worry about painting; updating floors, kitchens, or baths; replacing appliances or systems; or fixing a hundred other items that are bad. You get to enjoy everything new, clean, up-to-date, and functional.
But it’s not just about having to deal with all the issues when owning an older home. It’s also about how much money you don’t have to spend on it. To update a kitchen, bath, and floor, we are talking about costs into the 10’s of thousands of dollars. But when you build a new home, those costs are included in the price and the mortgage. If you buy an old house and update it later, you will either have to come up with the money out of your pocket or take out a loan. This is not always practical or convenient.
Yes, when you build a new home, you can start living your life from day one. No worries for years to come. No extra expenses. And, most importantly, you can immediately begin creating good times and memories with friends and family. All that’s hard to beat.
Do What’s Best For You
These are just some points to consider when contemplating whether to build a house or not. Everyone’s situation is different. So before building, think about your personal circumstances, what will work best for you, and what the worst case scenarios are. If you take the time and effort to take an honest look at the full picture, you will make the best decision for you and your family.
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