Is it going to be cheaper to build in 2022 than it was in 2021?
According to the National Association of Homebuilders, construction expenses are expected to rise 14.5 percent in 2021. (NAHB). This is approximately eight times the rate of expense growth projected for 2020. Over the last five years, the average annual rise in building costs has been less than 2%. While we don’t expect a cost reduction in 2022, we do expect a return to more regular cost rises in the 2% area. Lumber prices should begin to follow a more normal seasonal pattern. Lumber prices are unlikely to fall, but lesser volatility will aid supply chain normalization in 2022.
Is the property market on the verge of collapsing in 2022?
Many of us are still reeling from the devastation that the housing market endured in 2008. We had never seen a housing market collapse of that size before. The source of the 2008 financial crisis was lax financial lending standards, which allowed consumers to buy homes they couldn’t afford once their variable rate loans increased. Lending criteria have been substantially tougher in recent years, with the vast majority of loans being traditional fixed-rate loans. The lending criteria were strong at the height of the pandemic, when unemployment was rampant and only a small percentage of loans were in default or required forbearance. Even if a recession occurs in the future, this is an encouraging sign that we will not suffer a banking and foreclosure crisis like we had in 2008.
We are unlikely to see a housing crisis in 2022, but we do expect the market to calm down from the extraordinarily hot markets of 2020 and 2021.
Until the national meltdown in 2008, real estate was historically regionalized. The Sun Belt States (Florida, Texas, Arizona, and so on) have historically had hotter housing markets than Ohio, which also cool more dramatically. When the housing market cools due to higher interest rates, the first residences individuals stop buying are second homes, which account for a big percentage of homes in Sun Belt markets. In Ohio, we don’t have as many second homes or investors, which helps to keep our market more stable.
Is it likely that interest rates will rise?
For years, the housing market has been spoiled by low borrowing rates. Unfortunately, given the significant inflation we saw in 2021, rates are almost certain to rise in 2022. The Federal Reserve began lowering its purchases of Treasuries and mortgage-backed securities in November, with the intention of ceasing purchases by mid-2022. Interest rates will very certainly rise in 2022 as a result of this.
Where do I look for land to build my dream home?
In June of 2021, we reported that the availability of vacant land was at an all-time low. It has just gotten worse. The date for when more lots will be available has been pushed back due to supply chain concerns and a lengthy approval process.
As a build-on-your-lot house builder, we’ve noticed that the amount of available land for custom homes has been steadily decreasing since 2008. There are few new developments that are not under the jurisdiction of large regional or national home builders. This has made finding standard build able properties in subdivisions more difficult than ever for our clients.
The majority of available custom home property is currently on non-traditional lots (tear downs, lot splits, large vacant parcels).
If you’re in the PDX area and are in need of a Portland custom builder, you can visit Stonecreek building for a free consultation.