Why Building a New Home Still Makes Sense on Home Services

Jun

Why Building a New Home Still Makes Sense

posted by admin in Home Loan Services

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 â€“ 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.

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.

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 â€“ 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.