When can I build my home and not end up upside down in it? I know why the materials are sky high, but is there any end in sight?
Home builders / Construction guys
- Thread starter Uncle Ruckus
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I’ve asked the same question to contractor friends recently, because I was supposed to build a new rental home around May-June, and materials were so high it just didn’t make financial sense to do so (before even factoring in how much this pandemic has challenged landlords/owners of rental property - they’ve somehow been labeled as pariahs, but I digress). The short answer, is they don’t know. I’m not sure how the election will impact it, either.
I know a couple that had land bought, house plans finalized and contractor lined up. Construction estimate was $270K. That was in March. By June when they were supposed to start construction, the estimate was closer to $400K. They’ve wound up buying a home and just going to sit on it for a couple years.
Not anytime soon and probably not until the pandemic is over. It has supplies in various industries very short because of manufacturing delays.
Now is the time depending on how you contract with the builder. Lumber futures are falling like a rock and OSB will be not far behind.
The spring is going to be to late. Starts will be down in colder climates this winter and inventories will build. Everyone in non commodity products will probably take a January/early spring price increase of 5% or more.
Also, labor rates are going to skyrocket in the spring. With more stimulus likely, it's going to be hard to draw seasonal labor off the sofa.
New homes are like new cars, you pay a premium for the new house smell. But you also get 10 years of not pumping money into water heaters, HVAC, new appliances, etc.
I just signed on my new build scheduled completion in August.
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The spring is going to be to late. Starts will be down in colder climates this winter and inventories will build. Everyone in non commodity products will probably take a January/early spring price increase of 5% or more.
Also, labor rates are going to skyrocket in the spring. With more stimulus likely, it's going to be hard to draw seasonal labor off the sofa.
New homes are like new cars, you pay a premium for the new house smell. But you also get 10 years of not pumping money into water heaters, HVAC, new appliances, etc.
I just signed on my new build scheduled completion in August.
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There's not any end in sight where I live. Tract home builders are making a killing and people that buy from them immediately take a decent haircut because buyers of tract homes view them like cars. They place a lot of value on them being new and getting to pick out their finishes. People building custom homes have to take a haircut, at least compared to appraisal. Obviously they're not actually selling.
There are some custom home builders that are doing basically infill development and making money off spec homes. They are building higher quality than tract homes because of having better labor, but they are building them more or less like nice tract homes, spending money where you can see it and not where you can't where it would probably be better spent (i.e., insulation). You could probably copy what they're doing and come out with a house worth roughly what you have in it, less maybe some costs that you would want to spend on that would make the house more valuable for you to live in (like better insulation, more lights, etc) that doesn't get reflected in home prices.
Look at it from a longevity standpoint. How long are you planning to be there? I don't know anything about you but if the house is your final home for the long term, the money you save with the low interest rates could offset the loss on high material costs. If you are only going to be there, say, a few years and then start having kids and need more bedrooms then no, probably not a good idea to do it now.
Next to our house we have one custom home being built now and another starting in a couple of weeks. The one under construction has come to a screeching halt due to the custom cabinets. Apparently they are way behind due to material shortages. The metal roofing isn’t installed either due to shortages.
I don’t see how it gets better unless you wait for another 5 years or so. Even if you do that housing prices are skyrocketing due to shortages. I’m very glad we bought now because I really don’t see an end in sight, especially in Desoto County.
I have said this before and will say it again. Your primary home is not an investment. The land it sits on is. The house itself is a depreciating asset. You will put very little money into it the first 10 years it is built. The next 20-25 will likely cost as much as the original construction. Roof, HVAC, Kitchen Remodel, Floors, Paint, Fence, etc will hit in that time frame.
So to Ruckus, your haircut question is a bit loaded. If it's your house for 20+ years. Get started ASAP. With low rates, national demand for SFH, and long term inflationary pressures, it is possible building today may be cheaper than anytime in the next 10 years from an inflation adjusted cost standpoint.
If you are looking to live in the home for a few years and sell, that is a supply demand issue. Suburbs outside of Dallas or Nashville, go for it. At current growth rates, it will be hard not to get some strong appreciation. If you are in a small town in Mississippi that is declining, well that's another story. In that scenario there may be a temporary spike in demand, but long term you may find local land and labor costs under less pressure.
For my money, my personal home is not an investment. It's like a dog. You will own 5-6 throughout your life. 1 will be your favorite. 1 will be a real pain in the ***. The others will be just fine. You spend money on em because they complete your family and make you happy.
So to Ruckus, your haircut question is a bit loaded. If it's your house for 20+ years. Get started ASAP. With low rates, national demand for SFH, and long term inflationary pressures, it is possible building today may be cheaper than anytime in the next 10 years from an inflation adjusted cost standpoint.
If you are looking to live in the home for a few years and sell, that is a supply demand issue. Suburbs outside of Dallas or Nashville, go for it. At current growth rates, it will be hard not to get some strong appreciation. If you are in a small town in Mississippi that is declining, well that's another story. In that scenario there may be a temporary spike in demand, but long term you may find local land and labor costs under less pressure.
For my money, my personal home is not an investment. It's like a dog. You will own 5-6 throughout your life. 1 will be your favorite. 1 will be a real pain in the ***. The others will be just fine. You spend money on em because they complete your family and make you happy.
Forever home. Family land. Had plans drawn over the spring into summer. Custom home that I will sub out. I will sub the foundation/slab, framing, roofing, brick work for the chain wall and chimney, cabinets, insulation. Not sure on electrical work yet - gotta talk to some friends/family. I will do the hardy on the outside, the outside ceilings, front porch, set the water lines, hang and finish the sheetrock, inside floors, inside paint (not sure if I will spray the outside or pay someone).
Maybe a side topic but
What exactly is a “future”. When you buy a “future contract” for lumber, what exactly are you buying? Talk slow
What exactly is a “future”. When you buy a “future contract” for lumber, what exactly are you buying? Talk slow
Take a look at LP Smartside as well. It's similar to Hardy in durability, if installed correctly, and it allows for use of regular wood blades so you don't deal with all that dust. May be an alternative if supply or cost of Hardy becomes an issue. May also be subject to whatever supply issues Hardy may have. Just good to have options.
I feel for ya, man. I lucked out and started framing in February when OSB was about $8.50 per sheet. I checked the other day and it was $32/sheet. Like a couple others on here have said, I wouldn't look for an end until the pandemic starts getting under control. I told my father in law the other day that if I had to build now instead of when I did, I'd still be living in his guest house.
A futures contract is like an option (call or put) on a commodity. The difference being you have an obligation on a futures contract, but with "options" you can just let them expire.
So with futures, you buy or sell the contract for a specific date. The difference is when that date strikes, you either have to roll the contract over or take/make physical delivery. We can look at the oil debacle back in April as an example.
Oil was trading around $20 as contracts were expiring. If you held an oil purchase contract thinking the price would go up and you could sell it, it started becoming risky. See on April 20th if you didn't roll the contract over, you had to take physical delivery. Well each contract is 1000 barrels worth of oil, but they don't actually put the oil in barrels for you... You can't exactly put 55,000 gallons of WTI in the swimming pool out back, so it became a panic. Thus prices went crazy negative.
Now back to lumber. If I am building a house I want to know my material costs up front. Well with commodities (lumber, corn, oil, etc) there are external risks that can damage future supply/demand and cause prices to skyrocket. This summer it was costing $30,000 more for a framing package than it did in early April. If a builder signed a contract with a buyer on a house in April that was being framed in August either the builder it buyer took a big hit unless the breaking package was kicked in by the supplier. In that case they took the hit, unless they know how to use futures contracts.
My personal example of how I am using futures.
I'm building a house that will have framing begin in March/April of 202. I fully expect lumber prices to increase between now and then since colder climates slow down for winter and pick up in the spring. Also, most framing lumber comes out of Canada and Covid shutdowns are still on the table to interrupt supply. Plus La Nina creates a higher chance of increased snowfall this winter in Western Canada.
Lumber yards will start loading up inventory in January and February causing price increases at the mill level. I'm working with a builder that buys from a lumber yard that has locked in today's prices for next spring. They do this by buying a lumber futures contract at today's price ($500.) If the price goes up in April to $800 they will sell the contract at a profit and the actual lumber at a loss. If it goes the other way, they lose money on the contract but make it on the real lumber.
I takes the volatility out of the supply chain for the lumberyard, builder, and homeowner.
So with futures contracts there is a real world component. There are also plenty of speculators.
Hope that helps.
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The mill prices for SYP lumber has retreated to pre- pandemic levels. SYP plywood is trading up a little but it did not follow OSB up which is unusual.
OSB is really weird. Hurricane driven? Did some mills curtail production and never bring it back online? I'm not in the commodity game these days, but I still help out some of my old cronies... Everyone is perplexed with OSB. We expect a very hard fall soon.
I wonder when that will show up at Home Depot and Lowes? I get the feeling some price gouging has been going on using the cover of the pandemic.
We are perplexed. One of the floated theories is that the Lake Charles region produces a lot of the chemicals used in the manufacturing of OSB and most producers in LC are not back to capacity yet so there is a raw material shortage issue.
Maybe... Interestingly I interviewed for a job a while back for GP as their technical rep for plywood adhesives out of Lufkin TX. Their current guy was retiring within a few years. I know they make a big chunk of the plywood adhesives used in the region right there in Lufkin. No idea where the wax and resins for OSB is being produced, but LC makes sense.
I was curious if the big box stores sold out all of their safety stock and are reloading. I have seen pro dealers go buy up all of the OSB from Home Depot when markets spike. Depot/Lowes can't raise price fast enough in a fast market and the pro desk will sell OSB $50-$100/msf cheaper than mills. That was during Ike, donuts been a while and may not be an issue these days.
Now I am curious. I just texted a guy I know at the WY OSB mill in Arcadia LA to see what's up. Last time I talked with him a few months ago they were OTM.
Interesting to read it’s crazy in construction right now. The LTL shipping industry has done a number to my business in the last 18 months but since COVID started it’s gotten even worse. We are losing customers because we cannot keep our shipping costs down.
Yeah. I'm happy for everyone in construction that is benefitting from this.
12 years ago banks/mortgage producers/MBS traders did to the residential construction industry what Covid has done to travel/leisure. The framer and finish carpenter didn't do a damn thing to cause the housing crisis and watched their jobs come to a screeching halt in 2008.
Millions of them lost their jobs. Many left the trades for good. The construction industry didn't get bailed out. Banks did. Auto manufacturers did. Unemployed construction workers didn't get $600 a week extended unemployment. Everyone got a single $300 tax rebate. No PPP. Nada.
So while I empathize with those being affected by this crisis, I am tickled pink that the trades and building materials producers are thriving.
Not anytime soon. I’m in construction sales and deal mostly with copper. So I’m mostly involved with commercial construction. But I do deal a lot with other materials. Lumber has been hit hard but I would say the hardest hit has been PVC. There have been a lot a shortages of PVC which has caused some large price increases. I’m not sure about the lumber market buth company has been informed to expect issues with PVC through Q1 of 2021
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I just signed my contract to build in Gulfport and It's getting scary how the costs are going through the roof...I'm getting a small pool with a spa and it about took my breath away with the first bid I got. While the second guy was less, it was more than I ever dreamed it would be .. .....I was able to find MSU grads as my General Contractor, Pool builder, Closing attorney and I'm using an MSU grad to sell my current condo...funny how it worked out.
I agree 100%. Both are great products if installed properly. Its a hell of a lot harder to install Hardie (Fiber Cement) than LP. LP now has a smooth lap siding that looks great.
It does, thanks. Basically it’s an option that you have to act on, you can’t just let it expire, thus the reason it is more risky. What exactly do you mean by “roll over” a futures contract?
Also, for curiosity sake, you told me what an oil futures contract is, what is the actual quantity of a lumber contract? And is it in board feet of pine? Can you by contracts for different varieties and cuts?
Also, for curiosity sake, you told me what an oil futures contract is, what is the actual quantity of a lumber contract? And is it in board feet of pine? Can you by contracts for different varieties and cuts?
I'm selling my house now in Desoto County, just taking advantage of the market. I had 8 offers in 24 hours. We moved to a rental house for now and will just be patient, no rush to build. It's a great time to sell in Desoto County and make some money, if you have a place to go. New massive developments (Short Fork Farms and Silo Square) have started here, the next year or two will be interesting for housing.
We are locked in where we are at. My last house if all goes well. I’m very glad thinking about lumber prices isn’t something I have to worry about right now. We want to do some big projects, but nothing we can’t wait on. Deck, front porch and fence/barn for horses.
I don’t envy anybody buying in a hotspot right now. We got that done during the heights of the lockdown.
I'm not sure if I agree with all of this completely, I have no idea about futures on lumber etc...and it sounds like you know your stuff on all of that but I disagree that a new home isn't an investment. Yes, you will spend money on a new water heater ( $500 bucks) and a few issues here and there but your home will continue to increase in value. Also, most people aren't concerned with 10-20 years from now as far as building, most people are going to be asked to pay 20% down on a mortgage loans or land loan and don't want to be upside down right off the bat trying to build a new home. $5-10k can make a huge difference to a lot of people... I know that I would wait till the actual material cost went down or I would buy an older home in an established neighborhood. My brother is a purchaser for a major lumber company and he said we should start seeing price drop on wood after the first of the year....He's already seeing it on his end...But you do make a lot valid points , I think most people can't afford the increase cost we currently have....
For clarity purposes here is what I mean. The structure itself does not appreciate. The location does. If I build a million dollarsl home on an island nobody can get to it's worthless. If I build it on a desirable lot in a booming community, it will appreciate.
A house is falling apart from the day it is built. If demand stayed constant the value would track inflationary pressures within the home construction industry for a few years now matter what. But once it starts:
A. Falling in disrepair
B. Falling out of style
C. Not meeting current building expectations
It either begins to depreciate or you have to start pumping money into it to just to get it to appreciate again.
Think of it this way. The most a house can be worth is what it costs to rebuild it. If it's 20 years old it's not worth quite as much as newly built home of similar quality. No the land it sits on can skyrocket.
My home was built on out in a cow pasture 15 miles from civilization 35 years ago. The lots were selling for $10k or so. Fast forward to today, we are in the middle of the fastest growing city in the country with huge lots. Builders are paying 50+ times the original lot value to tear down the house and build monsters. In that case, the house actually has negative value because of the demo costs.
Probably not as illustrative, but I can pull up my yearly expenses on a popular online budgeting app for “home maintenance and home improvement” with a few clicks. We’re in a great area, but, yeah, this place is the worst investment I have.