Housing Crash: The Long-Term Damage You Need to Know
Download MP3 Introduction: A deep dive into how much building costs have increased and how these changes affect the ultimate selling or build price of a home.
- Case Study: An Instagram model shares the story of their dream home build, showing the actual hard numbers behind the cost increase. Despite aiming for a $3 million house, there are discrepancies in the numbers, suggesting other factors at play.
- Building Timeline:
- The person bought a Lakefront lot for $260,000 in 2020 and set out to build their dream house.
- Four years later, the house is still not completed—significantly longer than typical builds, like those in Texas that can take as little as 90 days.
- An extra $100,000 loan was required to cover unexpected costs due to supply chain issues.
- Cost Breakdown:
- Lumber: Budgeted $105,000 for lumber, which rose to $177,000, a 70% increase.
- Stone: The cost for architectural stone features increased from $27,500 to almost $40,000 due to supply chain delays.
- Appliances: The appliance budget jumped from $65,000 to $78,000, reflecting the broader increase in appliance prices.
- Discrepancies in the Numbers: Despite these cost increases, it's questionable whether the home will actually reach the $3 million mark in terms of build cost, as certain components like lumber don't seem to match the scale of the house.
- Other Factors:
- Supply chain disruptions remain a challenge, particularly with materials like adhesives and interior finishes.
- Lumber prices, though stabilized, remain double what they were a few years ago and could continue to fluctuate between $550 and $750 per thousand board feet.
- Self-Build vs. Speculative Builds:
- The dynamics between personal home building and speculative neighborhood construction differ. Builders aren't taking the same risks with speculative homes due to uncertain market conditions.
- Homebuilders are more likely to focus on commissions with secured financing, reducing risk.
- Lessons from History:
- A flashback to an episode of This Old House highlights the risks involved in flipping houses. A rehab project from the early 80s cost $42,000 in renovations but only sold for $38,000, showing that even seasoned builders can lose money.
- Construction Budgeting:
- It's crucial to manage construction budgets carefully, particularly when building speculative homes or taking on large remodel projects. The market and delays can quickly eat into profits.
- Fixed costs, such as carrying costs, must be considered when determining project timelines. The longer a house sits under construction, the more it costs.
- Final Thoughts:
- Construction costs are up by 70% over the past few years. Builders and homebuyers alike need to factor these increases into their budgets to avoid being caught short when prices escalate unexpectedly.
- Takeaways: Always budget with flexibility for unexpected cost increases. Consider the impact of supply chain delays and construction timelines on overall costs, and don't assume a house's build price will align with its expected selling price.
