If you’ve been on the fence about building your dream home, here are three reasons to break ground on a new construction home this year.
1. Prices of existing southeast Michigan homes bounced back at least 20% in the last six years. An analysis of sales data for existing homes from 2009 through most of 2015 performed by the Detroit Free Press shows that housing prices have finally returned to pre-recession 2007 levels across most of Southeast Michigan. Gains were greatest in pockets of Livingston County such as Howell and Gregory.
Real estate experts believe that the increase in the region’s home prices are a result of the state’s improving economy, better consumer confidence, still-low mortgage rates and somewhat tight inventories of move-in-ready homes. This means that if you’ve been hoping to build a new home, but were concerned about maximizing the sale of your existing Southeast Michigan home, there is a high probability that you will sell it for much more today than you could have a few years ago—making the possibility of building of your dream home more within reach than in previous years.
2. Certain areas have made building even more advantageous. A ZIP code by ZIP code analysis shows that highly sought after Southeast Michigan neighborhoods in communities like Brighton, Howell, South Lyon, Highland Township, Gregory and Oakland Township saw big gains in the price of existing homes in the past six years. If you are targeting these cities for your new home, the cost of building is on par with comparable existing home properties due to the surge in existing home sale prices.
When considering that most existing homes require an investment in replacements, e.g. new windows, roof, A/C and/or furnace, etc. and that inventory of existing homes for sale in these hot spots is tight, building your dream home becomes even more attractive. Also, if you are comparing buying and gutting an older existing home vs. building a new one, be sure to account for the time, money and stress resulting from home renovations which usually cost more and take longer than originally estimated.
3. Interest rates are predicted to increase. Last December, the Fed announced a short-term interest rate hike and assured the public that it would not have an immediate impact on the housing market, yet also stated that the recent run of low mortgage rates will definitely eventually end. Jonathan Smoke, chief economist at Realtor.com, encouraged aspirational home-buyers to, “… get the best rate you will possibly see, perhaps in your lifetimes…the earlier the better.”
The rates on construction loans are already higher than rates on permanent mortgage loans, which makes locking in rates sooner rather than later even more advantageous. Note that unlike traditional mortgages, to be approved for a construction loan, the lender will require a construction timetable, detailed plans and a realistic budget.
Article by: Jennifer Elkow
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