If you are considering a custom-built home, you should want to know what the challenges were in the past and are moving forward. We can look at the trends from the last two years to see if these challenges will continue, increase, or if they were just a blip on the screen that appear to be going away as we move deeper into 2023.
The custom home building industry has taken a considerable hit ever since the pandemic started. This industry, of course, was not alone, but when you consider the purchasing decision by consumers in terms of a dollar value, the decreased consumer confidence in builders is a reason to be concerned if you are considering a custom home build in the near future.
Some of the challenges faced by these companies are very real, while others can be attributed to misinformation or lack of due diligence on the part of the buyer. We are going to try to clean some of these up today.
Increased Material Prices
The number one challenge, by far, the industry is facing, is the rising cost of materials. I was speaking with a local builder recently about this to have him explain to me why a house that was built on a block two years ago cost $475,000, and today the newer homes, the exact same models, that are being built around the corner are now going for upwards of $650,000. His answer pretty much came down to the rising costs of building supplies that drive the market price of the new homes, which in turn drive up the prices of surrounding homes.
The good news is that these prices are starting to go the other way, and hopefully, that trend will continue.
Right behind the rising costs of materials is the rising cost and availability of labor. Labor shortages have been a growing issue over the last few years for builders, and that is not expected to change anytime soon. Builders now find themselves paying far more to lure in talented workers than they have had to in the past. That cost, of course, gets passed on to the buyer.
Rising Inflation, Interest Prices
Inflation is impacting the market on numerous fronts, most notably in rising material prices and interest rates. The Fed keeps adding points, which in turn drives interest rates up. Higher interest rates are expected to be a concern as we head into 2023 as well. We are seeing more potential buyers sit on the sidelines to wait this out.
Some of the negative headlines the industry is getting are a direct result of the contracts that people signed during the pandemic. There were more than a few people that signed a contract for one number than were told the final build would cost them tens of thousands more. They balked, but the rising costs was because of an escalation clause in the contract, which required the buyer to cover the rising costs of building materials. This came down to buyers not fully reading or understanding the contract language.
Now, that still did not stop people from complaining about builders, but we want you to be specifically aware of this aspect of the contract so you go over it in detail to ensure you do not wind up in the same situation.