Pros and cons: If you buy or build a house in 2022, preferential price (2023)

FAQs

Is it more expensive to buy or build a house in 2022? ›

But building a house is still more expensive than buying one. Existing home prices are 15% higher in 2022 than last year. But building material costs have gone up 19%. And thanks to inflation, builders are also paying more for other things they need to build houses, like workers, fuel and marketing.

Yes 2022 can still be a good time to build your custom forever home, despite rising costs and interest rates. Building your custom home is an investment in your family's lifestyle and should be looked at as a long term financial & lifestyle decision of living in your forever home for 5 or more years.

Interest rates and overall building costs are not forecasted to decrease into 2023, and could even continue rising. The market is volatile and world events are unpredictable, so it is likely that building sooner could save you money in the long run.

In general, buying an existing home is cheaper. According to the National Association of Home Builders and the U.S. Census Bureau the median cost to buy a house today is $410,600 which is $28,800 less than building one.

In 2023, the construction industry is expected to shrink by 7%. “This contraction is worse than the previous estimate of 4.3%, because growth is being hampered by high input costs, rising interest rates, inflation, and supply chain issues," said Patrick Ryan, executive vice president for the Americas at Linesight.

Like many sectors, the construction industry will not go unscathed. 2022 has seen a continual rise in construction material costs and the most recent Building Materials & Components Index reported a 16.7% increase for “All Work” for September 2022 year on year.

Is it cheaper to build or buy a house? As a rule of thumb, it's cheaper to buy a house than to build one. Building a new home costs $34,000 more, on average, than purchasing an existing home. The median cost of new construction was $449,000 in May 2022.

The cons of buying a new build

Premium price – Developers price new build properties at a premium, you will pay for the fact that everything is brand new. This means that new builds can lose their value more quickly than old houses, so when you come to sell, you may find that your house has depreciated in value.

Costs Of Building A New Home

New major appliances: You won't have older appliances to live with for now. Instead, you'll have to purchase new appliances when you move in. Permits and utilities: It can be expensive to add connections for basic utilities. Plus, the permitting process for new builds can be expensive.

Home renovations will typically be more affordable during a recession. While material prices rise, contractors generally charge less for your home remodel during lean economic times.

Is it a good time to build a house or should I wait? ›

If you've been considering building a home but haven't yet made the leap, 2023 might be the time to do it. The housing market will have stabilized, helping new projects to hold their value. The lumber market has also stabilized, meaning the cost of materials and construction will be more steady.

This is largely debated within the construction industry as it is really dependant on the materials that are used, the quality of the workmanship and the maintenance that is required and followed through on. On average, the generally expected and acceptable lifespan of a home should last at least 60 years.

Ranch Homes

A home with a simple and concise layout is the cheapest type of house to build. Ranch homes are typically single-story structures with attached garages. They're easy to find construction plans for and highly customizable, so you can find a home that fits your needs and budget.

The Golden State is the second-most cost-effective state for home building in the United States, trailing only Hawaii. Yardi's data estimates that it could be more than $200,000 cheaper to build a home from the ground up, rather than purchase one that's already standing.

The cheapest way to build a home is to design a simple box. Sticking to a square or rectangular floor plan makes the building and design simple. Generally speaking, building up is cheaper than building a sprawling one-story home, so you may want to consider planning for a multiple-story home if you need more space.

The coming year will probably bring selective reductions in materials costs and supply chain bottlenecks, Simonson said, but despite some easing for builders, he still expects that construction input costs are likely to continue rising more than overall consumer prices.

The potential for recession, continued inflation, critical labor shortages and supply chain issues will loom large over construction in 2023. Additionally, many eyes are on interest rates in a virtual wait-and-see mode as to whether they will continue to rise, and by how much.

Annual averages should be used to report inflation.

The average for 2022, when compared to the average for 2021, is up 12.7%. Several major cost components have been on decline the last few months: Lumber/Plywood, Steel Mill Products, Fabricated Steel, Steel Pipe and Tube, Aluminum and Diesel Fuel.

Building materials prices were 25% higher in 2022 than they were in 2021, new government figures show. The price rise will come as no surprise to those in the building trade, who have seen firsthand the effects of high building demand amid labour and construction material shortages.

The National Association of Home Builders (NAHB) reports that while housing costs have risen over the last ten years, cost increases should return to the national average of between 2 and 4 % in 2023.

What will happen to construction in 2022? ›

LaborIQ predicts a 3.9% growth in construction jobs in 2022 and also predicts a commensurate 3.9% median wage growth in construction jobs and, in some metropolitan regions, even wage growth of over 4.5%.

Lower Home Prices – There are fewer homebuyers during a recession. This low demand from the buy-side will cause home prices to fall. Therefore, you can typically get a better price on a home when buying during a recession. Less Competition – Fewer homebuyers means less competition and a more relaxed homebuying process.

Material Prices

A recent report by the Bureau of Labor Statistics states that prices for construction materials increased by around 25% in 2021, which is a trend that has continued into 2022.

Do new builds lose value? New build values can depreciate in the short term, simply because they are no longer 'new'. So, if you're only planning to stay in your property for a short period time, a new build may not be right for you as an investment.

"So, if you're in the market for a new-build, always be prepared to negotiate with the developer. The chances are that their asking prices are set at a level they are happy to reduce slightly for a quality buyer in a proceedable position who is bold enough to ask for a discount.

Space – Some developers pack a lot of properties onto a site in order to maximise their profits. This can mean a new-build home is less spacious than an older property. We know from experience this can particularly affect storage space and the size of the rooms.

Building a new home can become a stressful experience, even at the best of times. But when you throw a recession into the mix, there arises the possibility that the wrong building company may not even be strong enough to survive.

Does construction take a hit during recession? ›

The construction industry always is adversely affected during recessionary periods in the U.S. economy. During the Great Recession (December 2007 – June 2009), the U.S. construction industry saw nearly 2.5 million layoffs and the demise of nearly 150,000 construction companies.

Redfin deputy chief economist Taylor Marr expects about 16% fewer existing home sales in 2023 vs 2022. Marr believes potential buyers are still grappling with affordability, high mortgage rates, high home prices, inflation, and a potential recession. “People will only move if they need to,” Marr says.

According to a Statista report, house values across all 50 states and D.C. rose from 2020 to 2021. The same study saw the average appreciation for single-family homes in multiple states spike to more than 27 percent in a single year. However, as high inflation costs press down on buyers, it could depress home values.

The cheapest time to build a house is often in the fall and winter months. Due to lower demand for products and services, construction costs and building materials are quite low at this time of year. Beginning construction in the fall or winter, when lumber prices are lower, can save you a lot of money in the long run.

The internal wall insulation is also superior in new builds because these homes have well insulated cavity walls. This is done by insulating the cavity space between the outside and inside wall, adding an extra layer to keep the cold out and the heat in.

You usually pay a premium for a new build, similar properties in the area that are older typically are less expensive and more in line with the local area.

What is the best time to start home construction? While spring is an excellent season to begin construction, the fall and winter months are often when building supplies and construction costs are lowest due to lower demand.

Are open floor plans cheaper to build? Because the lack of weight-bearing partition walls requires heavy-duty beams in their place, the materials costs involved in building open floor plan homes generally makes them more costly.

Generally, square-shaped homes are more economical to build than rectangular-shaped homes.

Can you negotiate price when building a home? ›

“You can negotiate price, lot lines, loan fees and other items,” Stokes says. “A builder may initially say no, but keep pressing. If you don't ask, you don't know the answer.” Hiring a real estate agent who specializes in new construction can give you extra confidence in negotiating with builders.

The Foundation

Pouring a foundation is expensive; often it is one of the most expensive parts of building a home, usually over most of the items on this list. A larger home's foundation will be more expensive to pour. The type of foundation and the climate you're building in will also matter.

The bank usually wants you to make a down payment of 20% of either: the cost to build. or. the appraised value.

But many experts note that, given the ongoing shortage of properties, home prices will still continue to go up in 2022 -- just at a slower pace. Plus, prospective new homeowners have to contend with relatively high mortgage rates, which keep monthly mortgage payments expensive.

The annual rate of construction output price growth was 9.6% in the 12 months to June 2022; this was the strongest annual rate of price growth since records began in 2014.

All in all, though, building a new home during a recession is far from a bargain. The risks of getting a builder down on his luck, the cost of raw materials, and the chance of a home not appraising for what it costs to build are high.

Barring any unforeseen calamities, 2022 could be a good year for homebuilders and buyers. However, the effects of inflation, new COVID variants, or other market disruptions could change everything. As always… caveat emptor.

As 2022 begins to wrap up, borrowers looking to buy a home may find it's their best opportunity of the year. Mortgage rates have climbed overall, but home buying conditions generally ease up in fall and winter as demand fades and sellers become more flexible.

If a recession does hit, the cost of land could fall and construction costs could drop, too—as good a time as any to get building, Egan said.

Will construction costs go down in the future? ›

According to the CBRE and National Association of Homebuilders (NAHB), construction cost increases will return to the historical average of 2% and 4% in 2023. It is also expected that inflation will begin to taper by the beginning of next year and return to near-normal levels by June 2023.

Prediction 2: Lumber demand will drop again 2023

This follows consumption dropping by an estimated 1.6% (0.8 BBF) in 2022, which was driven by a sudden weakening in new residential construction activity in the second half of the year and a major correction in do-it-yourself (DIY) lumber demand.

Is it cheaper to build or buy a house? As a rule of thumb, it's cheaper to buy a house than to build one. Building a new home costs $34,000 more, on average, than purchasing an existing home. The median cost of new construction was $449,000 in May 2022.

Framing. Perhaps the most expensive part when it comes to building a home is the framing, which consists of wooden beams that make up the home's skeleton. Forbes states that high-quality lumber averages about $33,000 for a home in the United States. Metal stud framing systems begin around $20,000.

The cheapest way to build a home is to design a simple box. Sticking to a square or rectangular floor plan makes the building and design simple. Generally speaking, building up is cheaper than building a sprawling one-story home, so you may want to consider planning for a multiple-story home if you need more space.

Contractors would likely respond to a downturn by trimming their least productive personnel but would strive to keep their most talented team members. A recession would weaken the labor market, rendering workers more concerned by job security. Under those circumstances, they could accept lower compensation increases.

Mortgage rates have skyrocketed, and the market has taken a beating. But don't expect 2023 to turn into a buyer's market just yet, housing experts say. Home sales have plummeted across the board, with sales of existing homes dropping for 10 months in a row, a new record. And home-price growth has stalled.

But what about the long-term? The last significant recession began in 2008, dramatically affecting the real estate and mortgage industries. During that time, lumber prices dropped as low as $200 per thousand board feet (adjusted for price index increases and inflation over the last 13 years).