Here’s why new construction home prices are skyrocketing.
It’s been getting harder and harder for homebuyers to find and purchase new construction homes in the Triangle area. Many pandemic-related issues are causing construction to slow to a halt, including supply shortages, longer build times, and fewer spec (move-in-ready) homes. Most Realtors were hoping we’d find relief in the spring and summer, but the signs are pointing to more of the same.
We’re still forecasting supply shortages—to give you an idea of what’s happening, lumber prices have risen by 198% since the COVID-19 pandemic began. OSB, another major building material, is expected to increase by 400% according to a local builder. These fees will come straight out of your pocket as a buyer.
Speaking of fees, one building company has had to switch to a system that requires homebuyers to pay $5,000 for a lot reservation. Additionally, the price listed when you reserve will likely change by the time you close—they’re expecting price increases every 30 to 60 days, even while people are under contract.
That can be difficult for a lot of buyers, so it’s important to have a conversation with your Realtor. You need to find out if the price will remain the same when you go under contract or if you should expect increases. At best, price increases just mean a little more on your monthly payment, but at worst, price increases could ruin your debt-to-income ratio and prevent you from closing altogether.
We’re already starting to see price increases of around $25,000 to $40,000 in some communities. We’re also seeing high appraisals on certain houses simply because they have multiple offers. In a way, it’s kind of driving home prices up artificially.
On top of these rising costs, we’re expecting to see interest rates begin to increase. In fact, we’ve already seen them rise in the last few weeks. As interest rates increase, however, demand goes down. That may be fine for your needs now, but what about in the next few years? What if your needs change and you suddenly have to relocate? Prices have increased so much and so quickly that it would take five or six years before you can recoup your expenses in fees, commissions, and everything else involved in a home purchase.
Due to this, you may need to ask yourself a difficult question: Do you actually need to buy a house right now? Though I love to help clients and support my business through commissions, I also have a fiduciary responsibility to my clients. I don’t want to get them into a situation where they can’t close on a home or can’t afford it. Unfortunately, a lot of buyers in the market right now simply shouldn’t be there. If you’re feeling uncertain or uncomfortable about whether you should buy now or wait, you should definitely talk to your agent about it.
Consider whether you need a house right now or just want one. If you simply want one, it might be best to wait around six months to a year to see where the market takes us. If you don’t have a Realtor to speak to, I’d be happy to sit down with you and help you go over your options in our market. If you have any questions or would like more information about real estate and how it relates to your situation, feel free to reach out to me. I look forward to hearing from you soon.
