New Construction Delays Costing the Builder & Consumer

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New construction delays have everyone on edge. This renewed vigor in the economy manifests itself in a number of ways, some good, some not so good. Everywhere we turn we see a truck hauling building supplies or materials. Housing developments are popping up everywhere.

Interest rates are continuing to rise and yet builders are consistently raising their prices almost monthly…yet, we are seeing record sales.

This is a great problem to have, but a problem none the less.

Home buyers are frustrated because they were quoted an interest rate of 4.0% six months ago and now they are getting quoted closer the 5% or even higher. The result is a payment increase that may put them out of qualifying, or at the very least strain their budget.

Realtors are frustrated by the lack of inventory of existing homes, because it challenges the buyer and virtually squeezes out first-time home buyers, but sellers are happy since they are in complete control and getting multiple offers.

Builders are frustrated as they fight for the attention of a limited number of subcontractors resulting in schedule delays ranging from a few weeks to a few months. Builders are also seeing their cost of material rising faster than they can raise their prices. Think about it…if a builder has a 15-20% profit built in, and the cost of materials and labor go up the same between the time they go under contract with the buyer and the time the home is completed, they lose their profit.  Delays cost everyone money. What will we do when we have a tropical storm or even a hurricane causing even more delays?

Lenders are also frustrated because if rates rise to the point where the buyer no longer qualifies, they completely lose out.

In a time of rising interest rates (caused primarily by the heated economy and a promise by the FED to continue to raise interest rates), this translates into added costs and/or higher payments to the buyer and the builder.

Let’s look at the bright side. If you went under contract for a home costing $350,000 in December of 2017 and you are expecting to close in July of 2018,you could easily see a $15,000-$30,000 increase in built in equity.  Now don’t expect that this will always show up on your appraisal, as your home is setting the precedence for the next sale, but the equity will come as the builders close more sales in your community sold at the higher base price.

The bottom line is, we all are feeling the pinch of the current market conditions, but we are also reaping the benefits of an unprecedented economic boost.  The glass is half full!