A young family is looking to build a new home. They have numerous friends and relatives who have done the same thing in the past and told them it was an affordable option. So they find a company like P.L. Lyons Architectural Builders to build their home, but once they see the total estimate, they’re a little shocked. They ask themselves:
Why is this more than my friends and family said it was for them just a few years ago?
It’s a question many people are asking. Whether they are building a custom home or simply trying to purchase an already-built property. Prices have soared over the past few years in the world of home-buying, and the question on many people’s minds is: Why?
A Look Back at Inflation
From 1965 to 1982, the “Great Inflation” had a great impact on the United States economy. According to the Federal Reserve Bank of St. Louis Economic Research team, “While economists debate the relative importance of the factors that motivated and perpetuated inflation for more than a decade, there is little debate about its source. The origins of the Great Inflation were policies that allowed for an excessive growth in the supply of money—Federal Reserve policies.”
In the late 70s and early 80s, interest rates were up to as high as 15 percent, putting a major strain on those interested in buying a home.
Today, many families face a similar symptom of inflation: rising interest rates. This, along with other increasing costs for new construction, has had a major impact on those looking to build a custom home. With our rising national debt and more money being printed, the attempts to get the economy back under control are hitting home buyers harder than ever.
The NAHB has found that, “Prospective home buyers are also adversely affected when interest rates rise. NAHB’s priced-out estimates show that, depending on the starting rate, a quarter-point increase in the rate of 6.25% with zero points on a 30-year fixed-rate mortgage can price over 1.28 million U.S. households out of the market for the median-priced new home.”
However, inflation and interest rates are not the only factors leading to higher prices for custom homes. Let’s look at a few of the other situations that have left home buyers struggling to make heads or tails about their unexpected costs.
Materials and the Value of Competition
Most of us have played Monopoly at some point in our lives. It may have been on purpose, or you may have been forced to play by a small child who really didn’t understand how to play. Regardless of what made you play, the reality remains that the light-hearted game speaks to a very dangerous concept: What would happen if one individual owned everything? Very quickly, a cheap property on Baltic Avenue no longer belongs to a fair seller who owns a modest number of properties, it is now an overpriced plot of land owned by your money-hungry 8-year-old who has managed to buy up just about every existing property.
All jokes aside, following the events of the pandemic, this terrifying world of Monopoly isn’t so far off as it relates to material industries. Let’s take paint, for example.
At one point, many people looked to Louisville as the paint capital of the United States. With 15 different manufacturers, there was always an opportunity to compare prices and find a product that worked best for your budget. Post-2021, just one of those manufacturers still exists in Louisville, and now they control the price of paint.
When it comes to keeping prices reasonable for any product, competition always matters.
Countless mom-and-pop stores that sold quality materials at affordable prices shut down during the pandemic. They were then bought by major conglomerates, and very quickly, their prices went up because they were all being controlled by the same company. This is a common occurrence in today’s world and leads to frustrated builders, contractors, and buyers alike.
No Supply and Plenty of Demand
If you live in Louisville, you most likely know about or have heard about the many bridge projects that are happening. Billions of dollars are being promised to complete bridge systems across the Ohio River. You might be excited about this and ready to finally be able to go more than a week without facing major construction delays. However, what you may not realize is that if you are looking to build a home, those bridges are going to make your project more expensive.
How could new bridges impact the cost of a custom home? You may ask. The reason is that while the project may be two separate structures, the materials needed to build them are often the same.
Remember what we said about large companies owning a majority of a specific commodity or material? Now, imagine that conglomerate has been promised a multi-billion dollar government contract to provide that material for a bridge project. This conglomerate is the same place your contractors have to go in order to get concrete to build your home. Do you see the problem? Chances are, your home is much less of a priority to a large company than a guaranteed government payout.
At a recent new build in Bloomfield, Kentucky, contractors had to source their concrete all the way from Turkey because it would be impossible to get it for a reasonable price when they needed it here in the United States. Demand has risen higher than ever for a multitude of materials like lumber, resin for engineered wood, and petroleum products, and the supply simply cannot keep up.
Labor Shortage is Real
Many people whose first job was in the fast food industry know how awful it is when you run out of product, and you have to be the one to tell a disappointed customer. It’s not only awkward, but it’s frustrating when you have no control over the situation. Forces outside of your control pushed you into a situation that made your job harder.
For many subcontractors, the difficulty of getting materials and the increased government regulations for building aren’t worth the frustration. Many have begun moving to different countries where they can find more work, fewer regulations, and increased profit for their business.
This reality is another element that speaks to the importance of competition. With a smaller labor force and projects that need the expertise of a specialist, prices go up to hire local subcontractors who have the knowledge to complete the job.
The Cost of a Custom Home
Between inflation, interest rates, cost of materials, lack of competition, and a labor shortage, the high cost of a custom home begins to make sense. At P.L. Lyons, we understand this is a pain point for the countless families looking to build a new home.
For over 40 years, we’ve been building relationships with local businesses and subcontractors to offer you the best prices the market can offer. However, we also want to be sure your home is exactly what you envisioned in your dreams. A beautiful custom home comes at a substantial price, but the memories you will make in your forever home are priceless.
If any of these factors have you asking whether or not it’s worth it to build a custom home, we think the answer is still a resounding yes. It’s worth it to create a space that’s entirely yours, that fits your needs, and can last a lifetime. Many people spend the majority of their time in their homes. Home values continue to increase. And if you are already looking to move, the current inventory of houses on the market is still low in most areas. Rather than making sacrifices in your home preferences, a custom build is a wonderful experience with high-quality outcomes, especially if you turn to a team like ours.
Schedule a consultation with us today, and let’s talk about the real steps we can take to turn your dream home into reality.