Archive for economy
The National Association of Home Builders (NAHB) recently released their 2015 Construction Cost Survey conducted in August of 2015). NAHB’s 2015 construction cost survey was conducted by emailing a questionnaire to a representative sample of 4,090 home builders. The sample was stratified by size of the builder (based on number of starts) and region of the country (the sample being proportional to housing starts in each of the four principal Census regions).
The construction cost survey shows that, on average, 61.8 percent of the sales price goes to construction costs and 18.2 percent to the finished lot costs. On average Builder profit (including owners’ salary and return on capital) accounts for 9.0 percent of the sales prices.
Nationally, the average new home size was 2,802 square feet and the average sales price was $468,318. The average price per square foot was $167.14.
The NAHB Construction Cost Survey provides some additional insights into the cost of construction. The average lot was 20,129 square feet or .46 acres and cost $85,139. The average Total Construction Cost, excluding Lot Cost, Financing Cost, Sales Commissions, Marketing Cost, Builder Overhead and General Expenses, and Profit, was $289,415 or $103.29 per square foot.
How does Ada County compare with these national numbers. The Intermountain MLS Data for New Construction in Ada County reports that as of 11/04/2015, there have been a total of 1,656 new homes sold this year. The average new home size was 2,325 square feet and the average sale price was $323,059. The price per square foot ranged from $111.80 to $236.67 with the average price per square foot was $138.95.
Realtor.com’s Chief Economist, Jonathan Smoke
But buying a home costs money – the down payment, the monthly mortgage payment, the taxes, the insurance, and the maintenance. It enough to make you put off the house hunt and sign that yearlong lease with your landlord even though he upped your rent 25% and will likely do the same next year. But even with all of those costs, you still stand to save more than $200,000 over the next 30 years if you buy right now.
At a national level, the 30-year financial benefit of owning today is $217,726. Conversely, there is a financial penalty—for every single day you pay your landlord instead of your mortgage company. Waiting just one year and and you’re losing out on an estimated $18,672 in savings. Delay for three years, and that figure jumps to $54,879.
The penalties are so high because mortgage rates are forecast to increase and because home prices are rising quickly. The economist figures don’t take into account the qualitative advantages of home ownership which many potential home buyers would argue are equally, if not more, important when deciding whether to take the plunge – advantages such as more control over your living situation, flexibility with pets, and, generally, more options
“We’re at a critical juncture: Rents, home prices, and mortgage rates are all expected to rise significantly over the next several years,” Smoke says. “That means the cost of delaying homeownership will go up even more sharply, if you wait three years or even one. It’s much like the decision to start contributing to a 401(k). Delay contributing, and you lose out on the compounding returns.”
Smoke and his team even stacked the deck against owning. For instance, they assumed that any money saved by renters would be invested, and that the investment would enjoy a compound annual growth rate of 5% – consistent with conservative long-term expected market returns. But how many renters are actually saving and investing?
Nationally, it’s currently cheaper to buy than to rent, home prices are expected to appreciate, and, while renting is subject to inflation, homeownership costs are locked.
Strong economic drivers such as job growth, population growth, and household growth in your local market cause both rent and home prices to skyrocket driving the savings even higher.
In order to realize a positive financial benefit from buying a house, owners have to wait for “break-even time periods”—when the transaction costs of buying and selling cancel out. Nationally, that wait time is just over three years.
Smoke says: Nearly 90% of the markets (335 of ‘em) produce a financial benefit of at least $100,000 from owning over 30 years. In addition, almost a quarter of the nation’s markets reap a financial return greater than the national average.
Prices of newly built homes are on the rise again, illustrating that home builders are grappling with the same supply-and-demand problems bedeviling the existing home market.
New-home prices, which appeared to lose momentum over the past year, actually have caught a second wind of late.
New Commerce Department figures show that, after four consecutive months of slight declines, the median price of a newly built home in the U.S. rebounded by 4.1% in April to $297,300. That puts it back within striking distance of the all-time high of $302,700 set last November.
Some economists say demand simply is exceeding the pace at which builders can construct homes. Builders have started construction of 7.6% more single-family homes in the first four months of this year than at the same time last year, according to Commerce Department data, but they’ve sold 23.7% more than a year ago.
Some of those homes sold so far this year are speculative homes built at the end of last year. But others just haven’t gone under construction yet. Once builders get threatened with falling behind schedule, many opt to raise prices in a bid to temper demand.
“There just aren’t a lot of homes out there for sale,” said Mark Zandi, chief economist for Moody’s Analytics. “The market looks like it’s going to get even tighter because the level of construction remains very low compared to improving demand. I sense that, until builders can start ramping things up more significantly, pricing is going to be strong.”
In the resale market, the inventory level had held at about 4.6 months in the first quarter before rising to 5.3 months in April, meaning it would take that long at the current selling pace to burn through the available inventory of existing homes for sale. A balanced market, in which buyers and sellers are on roughly equal footing, is typically 6 to 7 months of supply.
Tight inventory in the resale market has resulted in prices close to the all-time high set nine years ago. In April, the median resale price reached $219,400, up 8.9% from April 2014. That increase likely will help to create more supply by pushing up home values and thus fattening homeowners’ equity cushions. However, the downside is that it makes buying a home more expensive, especially for first-time and entry-level buyers.
A recent survey conducted by John Burns Real Estate Consulting, LLC offered some insight into why prospective shoppers are reluctant to purchase. Of the more than 20,000 people who had recently visited a new home community and responded to the survey questions, 75% were current homeowners, 20% were renters, and 3% were living with their parents.
98% prefer ownership over renting for their next home. Although 20% of those who took the survey are currently renting, only 2% of them prefer to rent today. 2% said they wanted to rent for their next move but 68% of that 2% want to buy a home in the future.
Young couples and families were the most likely to choose homeownership over renting for next move.
75% said they would move for the right opportunity, 32% expect to move in the next year, and 25% do not know when they will move. Only 24% said they are very satisfied with their current home and have no desire to move.
64% responded “yes” or “maybe” to “What obstacles? It’s a great time to buy!”
When asked about the obstacles to buying a home today, the top three obstacles cited were:
- Bad time to sell
- Down payment
- Lack of confidence in the market
Only 23% said qualifying for a home was a potential obstacle. 50% cited some lack of confidence in the market and, although lack of confidence in the market was most common among the older, more mature buyers; the more mature, experienced buyers were also the ones most likely to recognize that now is the right time to buy a home.