Over these past few months, we have had many questions regarding the current housing market and the cost to build a new custom home in North America. We know that during this period of unpredictability, it can seem like all news is bad news and there is a lot of hesitation in the housing sector as a result.
We want to share some important, industry-specific information with you to hopefully ease your mind and help you make a more informed purchase decision during this time.
For those who are waiting and potentially looking to start building, the current market still gives you the opportunity to get prepared. The cost of land is stabilizing, the cost of materials is still relatively low compared to 2021, and clients can use the time to get approval on bank loans as well as permitting well before they start their project.
Let’s dive into the unique features of the current market and see how they can be applied for those looking to start their projects this year and in 2023.
Material Costs to Build a Home in 2022
Material and component costs except for lumber, plywood, and OSB have risen consistently over the last 20 years. Unfortunately, material costs almost never go down.
It is important then, to consider the future cost of construction materials and labour. If site work is included in the calculation, labour will account for approximately 40% of the cost of construction. Therefore, for those waiting for material costs to come down, it is very unlikely to happen.
It now makes sense to secure materials at today’s prices before any further inflation continues to increase them.
To combat inflation and commodity volatility, Linwood makes large inventory purchases at today’s low spot price to lock in savings for our customers. Based on our volume with specialty material suppliers, we also have guarantees that they will not increase their prices further over the year.
Fixed Labour Costs in Ontario with Linwood Construction Services
In our Ontario locations, our team at Linwood Construction Services (LCS) can fully build your home to completion.
During COVID LCS developed a strong network of builders & trades across the province that remain committed and exclusive to the Linwood program and due to our pricing agreements, we have been able to hold our labour costs to pre-COVID levels.
LCS did not increase its labour rates throughout the pandemic even though many opportunistic builders did. LCS labour pricing did not experience fluctuations and remains very competitive.
Now is the Time to Purchase Your Property in Advance
You can take advantage of the current market softening if you are considering buying land as the frenzied bidding wars are now a thing of the past. Likely, more property will become available as there is a resumption of more normal market conditions.
In just two months our market overall has shifted into balance mainly due to a softening of demand. It’s likely that we will see further softening as we return to pre-COVID work-life routines.
The key is being able to start building your new home as soon as you feel the time is right. This will allow you to take advantage of more favorable conditions for accessing labour. You are in a much stronger negotiating position if you can commit to hiring contractors who are temporarily short of work during the market’s lull.
With the ‘froth’ out of the market, it is a good time to consider buying land and ensuring your property is ready to start building.
Financing and Major Bank Updates
Another important consideration is that major financial institutions are expecting interest rates to rise and then fall in 2023. This is illustrated by the rates they are now willing to pay depositors for fixed-term deposits.
Unusually, short-term interest rates are greater than long-term interest rates. You want to be ready to take advantage of starting your project as soon as interest rates fall to levels you are comfortable with before the market heats up again.
Proactive Permitting and Next Steps
Remember, in most parts of North America, if you have a building permit in hand you can start your project any time or simply delay it until you are ready.
There are some exemptions to this, for example, in most municipalities throughout Ontario permits will expire if construction has not started within 6 months of the permit being issued. Further to this, once construction has started, building permits have to be renewed if construction isn’t completed within 12 months of the construction start date (not all municipalities enforce this).
However, if you don’t have a building permit you have no control over the best timing to start your project, so now is an excellent time to familiarize yourself with your local permitting requirements and get permits pre-emptively.
There is still a shortage of high-quality custom homes in desirable areas. This is not going to change in the future as demographics dictate that more and more prospective buyers will enter this sector of the housing market.
At Linwood Homes, we are committed to providing quality, award-winning service to our clients. If you have any questions or wish to meet with one of our team members, call 1-888-546-9663.