New Construction Knoxville TN Archives

How will tariffs affect the homebuilding industry?

The recently imposed tariffs on goods such as lumber and concrete have a direct impact on the homebuilding industry. If the costs of these goods rise due to these tariffs, then it could cause builders to raise the prices of their homes or stop building altogether because their margins would become too tight

Our good friend and client, Dan Mitchell, discusses the impact of tariffs on the homebuilding industry with Jake Tapper on CNN.

Check out Dan’s newest development in Louisville, TN: https://liveineaglecliffs.com

Buying An Existing Home Versus Building A Home

Does buying an existing home or building a new one better fit your needs?

If you’re thinking about buying a home, then this question may have crossed your mind. Before answering, make sure to consider the pros and cons of building a new home versus purchasing an existing to determine which one fits your needs and budget. From up-front costs to resale, timeframes, and affordability, there are many factors to consider.

BUILDING A NEW HOME

Primary Costs

In Knox County, the average cost for a new home was $327,202 with a price-per-square-foot of $129. This is well above the national average. Based on a recent report from the National Association of Home Builders, the average cost for a new home was $237,760 with a price-per-square-foot of $118.

Building a new home will also cost you time. Based on the size and floor plan of the home, construction can take anywhere from 4 to 12 months. You may also encounter delays along the way that can push back your move-in date. If your timeframe to move is strict, then building a home is likely not the best option for you.

Hidden Costs

New construction buyers must also pay for:

The land to build on
Obtaining building permits
Excavation (especially if the land has not yet been developed)
Impact & construction loan fees
Overage costs related to changes in building materials and/or changes to finishes you make along the way

As a rule of thumb, you will pay more to build a home versus buying an existing one…

Maintenance

One of the primary benefits of building a home is that it is completely move-in ready on the day you move in. Appliances, systems, and the roof will all be new and under warranty. You should not have any significant costs or repairs for several years. In Knox County, builders must provide a comprehensive 1-year warranty on the homes they sell. This means that if you experience any issues with your home, the builder is required to address them.

Value Appreciation & Availability

While every real estate market is different, newer homes tend to sell faster than older ones. There are numerous reasons for this, but as a general rule of thumb, the newer the home, the fewer improvements or updates it needs. Hence it is more desirable to home buyers.

Due to the rising costs of materials and lower profit margins for builders, it is harder to find/build new homes at lower price points. You also need to find land (or a lot) in an area or neighborhood that you want to live in. In more urban or populated areas, this can be quite challenging. The land you buy must also be an adequate size to fit the house you want to build. You may also have neighborhood restrictions you must adhere to. In some cases, the Homeowner’s Associations must approve your plans before construction can begin.

BUYING AN EXISTING HOME

Upfront Costs

In 2018, the average sales price of an existing home in Knox County was $241,853 with a price-per-square-foot of $111. You’ll notice that this is much higher than the average price-per-square-foot of new homes at $129.

Maintenance

Depending on the age and condition, there can be major replacements and many repairs required with older homes. It is far more challenging to get a truly “move-in ready” home when you are buying an existing one.

Value Appreciation & Availability

In general, it is easier to gauge the value of an existing home because there are more comparable homes that have recently sold. Existing homeowners gain appreciation from an improving housing market, but also on certain improvements they make (i.e. replacing the roof, finishing the basement, updating the kitchen).

No matter what price point you’re buying in, you should have some existing home options to choose from. Also, you likely won’t have to worry about adhering to neighborhood restrictions because the home already meets those guidelines.

WHAT’S THE VERDICT?

There are many pros and cons for both building a new home and buying an existing home. The right decision will depend on your budget, personal preferences, and timeframes for moving.

Existing home buyers are not only fortunate enough to avoid lengthy construction timeframes, but they also enjoy the advantage of having more control over when they move. On the flip side, existing home buyers will likely have to settle on things that are not on their house wish list. In general, they must also be okay with older systems and appliances that will need replacement sooner than in new construction homes. Those who have very specific wants and needs should strongly consider building a home.

Ready to purchase your own Knoxville area home? HMG will be your guide through the process. Check out the current homes for sale in Knoxville!

Will Knoxville New Construction Save The Day?

….We Think Yes!

In our recent New Construction Update for Knoxville, TN, we noted that there is potential for an upcoming shift in the real estate market. There are also many questions surrounding this shift, but looking ahead to find answers is what will determine which Knoxville builders and developers will survive in this evolving market. The challenges ahead stem from low inventory (see graph below), climbing interest rates, affordability and other factors, all of which could hinder buyers from being able to purchase a home.

Fortunately, there is hope on the horizon. As Inman points out, new construction may just save the day. Builder confidence is higher than ever, and in February, housing starts as well as new home sales were growing. This is a good sign, and could help alleviate the challenges of low-inventory real estate markets by giving buyers the option to buy a new home versus an existing one.

Some notable facts about new construction from Inman:

New builds typically represent about 10 percent of the market, which is a relatively small portion
The median price of a new home is higher than that of an existing home
New home starts soared during the housing boom, but flattened over the past few years, and have not yet fully recovered.
All around the country, questions of who should build, where they should build and what type of housing they should build has been discussed in neighborhood councils and has made it onto a few city ballots during recent elections.
Rising costs of land, labor and materials may hurt new construction ventures, especially in lower price points where there is the most demand.
The search for affordable housing is already pushing many potential buyers out of major metropolitan areas.

With buying season upon us, The Holli McCray Group is here to help builders and developers overcome the challenges stemming from low inventory and affordability. Our team has hundreds for home buyers looking for their perfect home, but have not yet found it. What better way to solve this problem that with the purchase of a brand new home from a trusted Knoxville builder endorsed by the Home Builders Association of Greater Knoxville (HBAGK). Based on all of the information we have seen recently, this is a fantastic time to be building new homes!

Learn more about our new construction strategic alliance program for builders and developers in the Knoxville area. Schedule a time to speak with our New Construction Specialist, Darryl Dardar, who has an impressive resume working with both builders and developers to effectively sell their properties.

Links:

New Construction Market Update for Knoxville, TN

where does new construction go from here…

The residential new construction real estate market is great now, right? Buyers are abundant and many builders can’t build ’em fast enough. Sound familiar? While the underlying financial circumstances are different than the housing bubble we experienced before 2007, many believe a shift in the real estate market may be just ahead. What did you learn from the previous housing market shift and what are you doing differently this time?

Today we face some different challenges

Housing inventories continue to diminish, especially for entry-level homes. Distressed properties are at their lowest levels in years. Home values continue to increase at an average of 5% or better annually *(1). However, affordability, as a percentage of income, has remained flat *(2) since 2009 in part due to persistently low mortgage rates *(3) and flat wage growth *(4). Student debt also plays a role in the purchasing power of millennials (a huge segment of the future home buying market). *(5)

Think about those facts for just a minute. Do you think mortgage rates are going to stay at these historically low rates? Will wages suddenly begin growing at the rate needed to keep up with the increasing costs of living? Are housing prices going to continue increasing due to the short supply in the market, thus making affordability even more of an issue? How will the ever-tightening appraisal process affect that increase? Will the student debt of your future customers suddenly disappear? While you can’t predict the future, can you see the possibility of another shift in the market?

How you prepare now will determine how well your business survives

Will you do what you’ve always done because it worked in the past or will you be forward-thinking and plan for the long-term success of your business? We certainly don’t have all of the answers, but we do have a wealth of ideas and resources. We offer different ways of looking at the home building industry and ways to better prepare for the future with fewer risks, less volatility, and greater opportunity. We are looking for a few developers, real estate investors, builders, and banks to create something unique with us as strategic partners. There are no obligations on your part to see if we should work together. What we can promise is an open-minded discussion about the future and how to prepare. Let’s schedule a time to simply have a conversation.

*1. Home prices for 2016 increased 5% year over year from 2015 but showing signs of regressing back to the long-term average of 4%. – Source NAR
*2. Housing affordability has historically averaged around 21.6% of income but has dropped to 15% or below since 2009. – Source NAR
*3. Mortgage rates have historically averaged 8.2% since 1972 with rates averaging well below 5% since January 2011 and averaging 3.65% for 2016. – Source Freddie Mac
*4. Middle-class wages are stagnant—Middle-wage workers’ hourly wage is up 6% since 1979, low-wage workers’ wages are down 5%, while those with very high wages saw a 41% increase. – Source EPI
*5. Student loan debt has increased from 0.3 trillion in 2003 (representing 13.63% of total debt) to 1.3 trillion in 2016 (representing 36.11% of total debt) – Source Federal Reserve Bank of New York