Home Prices Peak, Motivating Owner Builders

Seven years after the real estate bust, housing prices are racing back toward previous levels.  In fact, several metro areas have actually surpassed the pricing peaks reached during the housing bubble.  This situation should provide motivation for those owner builders wanting to build their dream home and get exactly what they want at a fair price.

Metros Reaching New Peaks

Home values, according to Zillow, are back to all-time highs in ten of the nation’s fifty largest metro areas.  In these locations, low inventory available for sale along with historically low interest rates have pushed prices to new highs.  Some even believe the current situation could lead to new local price bubbles.  A few examples of areas with home prices shooting past their peaks (per the Zillow Home Value Index) include…

• Palo Alto, CA (San Francisco Bay Area)  +40.4%
• Connellsville, PA (Pittsburgh Metro Area)   +18%
• Denver, CO   +29.5%
• Minco, OK (Oklahoma City Metro Area)  +47%

The Owner Builder Advantage

There is still good news for owner builders that want to manage the process for building their dream home.  When you build a new home yourself, you basically get it at cost.  Meaning, the owner builder pockets the mark-up that home builders charge.  And as the supply of homes decreases, home builders raise their prices to match the current market conditions…so their mark-up increases.  After all, why would a new home builder sell a brand new home that allows the customer to choose flooring, cabinets, countertops…etc, for twenty percent less than the thirty year old, used home down the street?  And as builder margins  increase, the savings for owner builders goes up right along with them.

But what about resale home prices?  When they become inflated due to low inventory, existing home prices can far surpass the actual cost to build.  Why?  It’s simple supply and demand.  Bidding wars start when there aren’t enough homes to meet the demand which drives the pricing up.  Here’s a true story from a few months ago in Cleveland…which by the way, isn’t the hottest real estate market, by far.  A home down the street from a friend of mine was listed for $279k.  A couple came in and offered $289k because the previous home they made an offer on was stolen out from under them by a buyer with a higher offer.  So, this buyer offered more than the asking price to ensure they got the home.

So if you are serious about getting your dream home and don’t want to pay a premium, consider becoming an owner builder.  Armchair Builder has some great resources to help you get started.  Check out our eStore for more info.

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