Buy or Build – Understanding The Market


Understanding The Market

It is important to understand that home values fluxuate.  As is the case with most markets, the real estate market is determined by supply and demand.  A healthy market will result in a 2.5% to 3% appreciation (or growth in value) each year.  However there are other factors that can impact this growth.  In the late 1990’s for example, the Federal Government decided everyone should be entitled to a new home and began implementing programs that allowed more buyers to qualify for a loan.  They did this by insuring lenders against loss (even when lending money to marginal buyers).  As a result, buyers that could not otherwise qualify for a loan….now could under the new federal programs.  The housing market boomed with an annual growth rate of 10% to 20%.  With real estate appreciating at this unprecedented rate, everyone was getting into the real estate market.

With a shortage of existing homes, new construction began to boom.  Because of the home shortage, the cost to build a home was actually less than the cost to buy an existing home.   Home prices continued to rise (both buying and building) until the Real Estate market hit is’t peak between 2006 and 2007.  This unnatural growth rate could no longer be sustained.  From late 2007 to 2011 we saw a correction in the market with falling home prices.  As a result, the market now had more homes than there were buyers which reversed the buy vs. build dynamic.  As house prices plummeted, those buyers that were buying could purchase an existing home much less than they could build a home.  In the Southeast US, for example, the cost differential between buying and building was about 30% to 40%.  In other words, it cost more to build a home than it did to purchase a comparable existing home.  Although we continue to experience a normal growth rate well into 2013, the existing inventory of homes has kept this differential at close to 35%.  So…… if you are on a tight budget, you may want to consider buying rather than building before the current inventory of homes is depleted.    To see a list of distressed properties that need to sell fast, visit this link:  Distressed Properties


So What Is A Buyer To Do?

The best thing you can do when faced with a new challenge is find someone that knows more about the ins and outs than you do to guide you through the process and help you avoid the pitfalls you are likely to encounter.  As it pertains to finding or building a new home, getting it financed and helping you stay sane through the process, you might want to consider calling the professionals at Modern Rustic Homes.  They have been through this many times and are uniquely equipped to walk you through the buy versus build options as well as connect you with the right lender that best meets your specific loan requirements.  They even have a  “New Home Concierge” who is responsible for helping through the process.

To learn more, here are a few links that may be helpful:

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