If you’ve been looking to take out a loan, or if you’ve been paying attention to the news reports, you know that the Federal Reserve has been persistently raising interest rates. At the time of writing this article, the 30-year fixed rate for mortgages is 6.83%. Why the rate hikes? In a word, “inflation.”
By raising interest rates, the Federal Reserve makes it more expensive to borrow money. That goes for all of us as individuals and also for businesses and banks. The goal is to slow the rate of spending so that prices don’t keep climbing higher and higher quite so quickly. By increasing interest rates, the Fed hopes to slow borrowing, lower the amount of money in circulation, and reduce inflation to a rate it prefers – which is about 2%.
Once the Fed eases off interest rate hikes, we can expect the loan rates to go down. This will make it easier for homebuyers to get more favorable terms.
It’s not just interest rates giving potential homebuyers the squeeze. Anyone looking to buy has been contending with rising home prices due to a shortage of homes for sale (though recent reports say this is easing a bit).
New-Construction Homebuyers Also Face Higher Prices
Homebuyers in the market for new-construction homes are also facing the prospect of paying more to build their homes due to supply chain issues and inflation. The cost of building materials has climbed 35.6% since the start of the pandemic.
But on this point, there is an upside to the Fed’s efforts. As it continues to try to chip away at inflation, we can expect that high mortgage rates will be with us for a while. However, we can also expect that prices will steadily decline, making the cost of building a new home less expensive.
Tips for Building Your Custom Home
If you’re eager to build a new home for your family, you don’t have to postpone your dreams. Here are a few of our recommendations:
- Work with a custom home builder. A builder experienced in new homes will understand the fluctuations in prices of materials like lumber and give you an educated guess on what you might pay for materials over the course of the time it takes to build your home. They will also give you a realistic time frame for completion of your home.
- Know your finance options when building a custom home. We recommend our clients take advantage of the construction-to-permanent loan. This loan starts out as a construction loan for the funds you need to build your home, and then becomes your mortgage when the build is complete. You save on fees, make interest-only payments during construction, and have just a single set of closing costs to deal with.
- Be patient. Because of supply chain issues, new homes are taking longer to build since before the pandemic. The bright side to this waiting: You may end of paying less for materials as inflation eases up over that time frame.
Partner with LaBram Homes to Design Your
Custom Home Now
Even in these rough economic waters, don’t feel you have to settle or compromise. Good things are worth waiting for.
Designing a home can take between 4-6 months. Keep that in mind so you don’t abandon your dream of a custom home. Start designing your home now while the economy gets itself back on track. By the time you start building, pricing could be more favorable.
Work with LaBram Homes and tell us about your dream home. Schedule an initial meeting with our team of experts so we can help develop your vision and start the process of creating the home you want.