Navigating Today’s Real Estate Market: Why Building Now is a Wise Investment

Published January 12, 2024

In the ever-changing landscape of today’s economy, particularly within the real estate sector, prospective homeowners are faced with a crucial question: Is now the right time to build a home? Current market trends and financial analysis suggest that taking the leap into construction right now could be a highly beneficial financial move. 

Understanding the Power of Refinancing

Refinancing is a strategic tool that shouldn’t be overlooked in the current economic climate. Homebuyers who are apprehensive about the current high mortgage rates must consider the long-term picture. The ability to refinance later, when rates are lower, can secure a valuable property and significantly reduce the cost of borrowing in the future.

Timing is Everything in Real Estate

The real estate market is cyclical by nature. The Chief Economist for the National Association of Realtors recently reported, “Yun forecasts that interest rates will drop to between 6-7% by the spring buying season and anticipates that more sellers will enter the market. However, a future drop in interest rates will boost construction activities, driving up the demand and, in turn, the cost of building materials. Therefore, waiting for a lower rate may lead to higher overall construction costs.

Scenario Analysis: A Financial Perspective

Scenario 1: Building Now

  • Home Cost: $550,000
  • Down Payment (10%): $55,000
  • Mortgage (7.5% interest for 30 years): $495,000
  • Monthly Payment: $3,461.11

Scenario 2: Waiting One Year

  • Home Cost (unchanged): $550,000
  • Down Payment (10%): $55,000
  • Mortgage (6.5% interest for 30 years): $495,000
  • Monthly Payment: $3,128.74
  • Annual Savings if Rates Drop: $3,988.44

However, this scenario doesn’t factor in the potential rise in home prices.

Scenario 3: The Cost of Waiting (with Price Increase)

  • Predicted Average Price Increase: 13.4%
  • New Home Cost: $623,700
  • Down Payment (10%): $62,370
  • Mortgage (6.5% interest for 30 years): $561,330
  • Monthly Payment: $3,547.99
  • Annual Excess Cost over Scenario 1: $5,031.00

The Broader Context Beyond Interest Rates

While securing a lower interest rate is appealing, it’s crucial to consider the bigger picture. The potential rise in construction costs could surpass the average, amplifying the financial burden of waiting. Furthermore, the benefits of refinancing or buying down rates aren’t factored into these scenarios, which could lead to even more savings if the rates drop.

The Verdict: Building Now is a Financially Sound Choice

Considering the various scenarios and the current market trends, it’s evident that building now is a prudent decision for those who are financially prepared. The strategy goes beyond securing a lower interest rate; it’s about preempting the expected rise in construction costs. Building now, with the option to refinance when rates decrease, can lead to considerable savings over time, making it a wise investment in today’s unpredictable economic climate.

Read More: 5 Cost Saving Tips for Building Your Custom Home

Ready to speak with a custom home consultant about your options for building a new home in the Brazos Valley? The LaFollette Custom Homes team is standing by! Proper planning and understanding of market dynamics allow you to turn current economic uncertainties into long-term financial gain. Contact LaFollette Custom Homes and let’s build together.



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