We all love new construction. The smell of fresh paint, the crispness of a clean floor. But if you’re considering building a home in 2023, there are some things to consider before jumping in. In this article, we’ll look at the pros and cons of new construction during a period of economic uncertainty.
The housing market is currently experiencing a downturn, and the media has reported on it extensively.
But this is not news to us—the housing market is cyclical, and we know it will recover. In fact, we’ve seen this before: after the 2008 financial crisis, the housing market took years to recover because of tighter lending standards and a lack of confidence among potential buyers. But eventually, those factors worked themselves out, buyer sentiment increased, and the market was able to bounce back.
What is a housing recession?
According to the National Association of Home Builders, a Housing Recession is indicated by the decline in single-family home sales, month over month, for six consecutive months. In July 2022, home sales were down 20% yearly and nearly 6% monthly.
If those stats are pressing enough, the recent mortgage interest rate adjustments set in place by the federal reserve are a telling sign that the US housing market is in dire need of an adjustment.
So, what does that mean for those of you who are interested in new construction? We’ll dive into the details during a housing recession to help you better understand whether or not it’s right for you.
Should you build a house in 2023?
If you’re thinking about building a house in 2023, you might be wondering what the cost of construction will be. Will it go down? And is it better to build or buy a house in 2023?
We’ll look at the two primary inputs for any new construction project, building materials and labor, and share our take on new construction in the upcoming year.
Labor & Skilled Trades
The cost of construction has historically been lower during recessions, and there’s no reason to think that trend won’t continue. That’s because labor supply typically increases during a recession, meaning contractors will have more workers available and can afford to charge less per hour.
To provide some background on the current situation, the mass-scale development of spec communities across the country since 2020 has had the labor force in the US overwhelmed. As the single-family housing market starts to slow down with the foresight of recession, resources are pulled from the spec market, and the labor force is generally freed up.
Therefore, for those who have saved to build the home of their dreams, 2023 may present a unique opportunity.
Over the past few years, building materials have seen dramatic fluctuations in pricing. The volatility in the lumber market was primarily due to supply chain issues onset by the pandemic and the disturbance of a standard market equilibrium due to the boom in the housing market in late 2020 and throughout 2021.
As the demand for mass-scale new construction continues to decline, we are seeing more stabilization in the lumber market. Stabilization does not necessarily indicate that we will see lumber prices fall, even in the event of an economic recession. It suggests that we will not see any more dramatic spikes in pricing.
The fluctuation in the cost of building materials over the past few years put both contractors and prospective home builders into complicated binds. Estimates were sent out, and those numbers had to change at what seemed like a moment’s notice. If you weren’t ready to jump on your project, sign a contract, and get things moving immediately, there was a chance that materials alone would put you out of your budget range.
With less price fluctuation expected in 2023, we can expect that contractors and prospective home builders will see more completed contracts and fewer projects tied up due to pricing constraints.
To Build or Buy A Home in 2023
Real estate listings are up, and home prices are down across the country. Price cuts in the existing home inventory may be appealing, but it’s also a great time to search for land and think of new construction.
We’ll look at a few factors you’ll need to consider when deciding whether to build or buy a home in 2023.
Sustainability & Efficiency
Depending on where you are looking to build or buy, your home’s overall sustainability and efficiency can be a huge selling point but also a deterrent if not prioritized. Building materials, HVAC systems, appliances, and everything in between have transformed over the past few decades. When you build a home vs. buying existing inventory, you can take advantage of technological and material advancements.
Traditional stick-built homes, especially those within larger development communities, are known for being energy vampires. They are built rapidly, often with a “caulk & walk” mentality. Meaning that if something wasn’t quite right, you apply some caulk and walk off calling it good.
Building a modern, system-built structure can eliminate many factors that lead to adverse long-term energy usage. SIPs (structural insulated panels), for example, allow builders to work with superior efficiency when compared to a stick-built structure while also providing outstanding insulation value right off the truck.
SIPs are only one example. There are several other modern building materials, such as cool roofing, ICF (insulating concrete forms), Low-E windows & doors, etc… all of which provide a more sustainable and energy-efficient living space.
Building sustainably in 2023 may not be the cheapest way into a home, but it should undoubtedly be considered. Your upfront cost is likely to be more expensive than buying from the existing inventory, but you can expect to save money on energy-related expenses starting from day one. You’re also buying a home that will continue to appreciate with the market as building codes and energy standards grow increasingly stringent throughout the US.
Comfort & Flexibility
When considering whether to build a new home or buy a home in 2023, you’ll have to decide whether another’s vision will fit your or your family’s needs and wants. A house may look beautiful from the outside, but depending on your unique goals, it may not function how you want it to on the interior. Working one-on-one with a designer allows you to create a floor plan that checks all the boxes while also achieving the desired aesthetic on the exterior.
Having the ability to work from the ground up assures that you and your family will be able to live and grow comfortably throughout the space without needing to make any drastic and costly changes.
That said, there always comes a time in any structure’s life when changes are made. When you’ve designed a home from start to finish, you retain the blueprints and construction documents of the house from day one. You’ll know and understand the interworking of your house better than anyone else, and you’ll be equipped with the knowledge and documents needed if expert help is required.
Ultimately, building a house from the ground up provides you, as the homeowner, ultimate comfort but also a level of flexibility to make changes in the future. You’re not stuck trying to make someone else’s vision a reality for you and your family, and you’re able to bring your ideas to fruition.