Would you be a better fit for renting or buying? In this post, we discuss both options, and where you might fit in.
Thinking about building your next home? New home builds are attractive to those who don’t want to get deeply involved in the real estate market, and for people who are very specific about their housing needs. On the other hand, this project comes with its own hurdles and challenges. Completing a new home build is not something to take lightly. What is it about this project that makes it desirable, and why do people stay away? Here’s what you need to know!
Price of materials
The costs of building in the residential sector continues to increase. According to Statistics Canada, residential building costs went up 5.6 per cent in Q1 of 2022, which was the biggest rise since November 2021. A couple of factors are contributing to the rise of material prices. For one, construction labour vacancies are resulting in slower progress, pent-up demand, and therefore, higher costs. Plus, labour costs are going up as companies have had to increase wages to gain new talent for jobs. Of course, the cost of fuel is also high, and borrowers are on the hook for paying for the extra expense it takes to transport materials. Since these costs are part of the construction process, construction companies pass them onto the borrower.
Declining housing prices
One reason people may be hesitant to take on new home builds is due to decreasing housing prices for existing homes. It’s becoming easier to enter the market, which might prompt some to opt for that route instead of building their own home. New home builds were popular when supply was super low, but it is steadily catching up. Plus, as prices continue to decrease, some people are unsure about committing to a price on a new build today, and then having the true value of the property decrease in two months. This limits the money someone could make from selling their own home, as they will owe the higher price from earlier in the year while only earning the current value for their own property.
Backups and delays
Another thing to consider with new home builds is the fact that you will definitely be facing delays in your project. When the pandemic started, we experienced huge backups in everything from lumber to furniture, with prices soaring as a result. While things have loosened a little, builders are still experiencing delays receiving the materials they need to complete home projects, from renovations to full builds. Having a home renovation put off is one thing, but not having a liveable residence is quite another. This is a big thing to keep in mind. You must have another place to stay long-term, with flexibility to extend your dates if necessary.
Tricky mortgage process
New home builds have a much more complex mortgage process than buying a pre-built home. Borrowers do not receive the full mortgage amount at once, like they do when they buy an existing home. Instead, they receive what are called draws. Each draw represents a certain point in the building process where the lender is ready to provide more money to the borrower. This is to ensure the home is in fact being built properly and is up to standard, so the lender is financing a worthwhile project. Common draw stages include completion of foundation work, completion of roofing and walls, completion of plumbing, and final completion of the home.
Dodging the market
One of the big reasons people opt for new home builds is to avoid jumping directly into the real estate market. Of course, borrowers will still have to deal with rate hikes. However, issues with housing listings, prices, and competition from other buyers won’t be an issue. The market has been constantly changing, and buyers and sellers have both been feeling the strain. New home builds mean you don’t have to think about putting in the best offer, nor do you need to spend time trying to locate the right property in your price range.
Another reason people choose to build their own home these days is the appeal of complete personalization. Pre-built homes obviously come a certain way, and if you’re not sold on it, you’re either looking at completing renovations or moving on. When you start from scratch, you can be sure the home meets all of your needs without spending time trying to hunt down the right house. You also have more control over your budget, as you can choose the size of the property and materials used, which both greatly affect a home’s price. Many people want their homes to feel distinctly like them, which, admittedly, can feel like an overwhelming task when moving into an empty house you didn’t create.
New home builds certainly have appeal. They are customizable, they avoid some big headaches in the real estate market, and they give you more control over location. However, it’s also important to consider the costs of materials, the mortgage process, and potential delays. Building your own home is a commitment no matter what’s happening in the market. If you’re interested in taking on this project, we highly recommend contacting a mortgage broker. We can walk you through the process and get you on track to building the right home.
If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can contact us at (902) 482-2770 or contact us here.