The sentiment in the home building industry is at all-time lows. Builders are very skeptical and really scared to build any kind of spec homes and even get involved with constructing new homes for clients. What’s the reason? Well, they say we’re in a housing recession, and certainly, the volume of home purchases is plummeting. Not as many houses are being purchased, and the prices are still holding about where they have been. There may be a little softness in some areas. Some areas actually even higher in the last three-four months, but the volume is down.
It’s a lot of psychology in this housing recession however, there’s one thing to keep in mind as a builder, this might be the best time to build a house. If nobody else is building you could be the contrarian. Where you’re not going to go out and build 10 spec homes, but lumber prices are down. Labor’s a little bit more available. There’s not as much competition for building new homes. But what is still in place is the demand. There are still four or 5 million unfulfilled. home buyers out there that tried to buy a house in the last 24 months and couldn’t because of bidding wars. Because of lack of inventory. And they’re still out there. Yeah, there’s more inventory. But if you could, in some of that inventory or houses that maybe are what’s it called left-handed meaning that they’re not the best options they’re not very appealing. Not competitive. If you build a new house, well first of all now you have no apologies. Everything is brand new. And if you can use efficient construction methods and don’t overbuild you don’t want to build a $900,000 house $800,000 house. Depending on the fees and the land costs in your area if you could build something for 340, 350 maybe 400 and sell it at the current medium price which is 440 or 430, make a little bit of a profit and still have a new house for median money.
You might be an opportunity where you can turn the house that’s if you don’t have any other work to do. Look if you’ve got remodels and additions, forget about it. But if you’re a builder, you build a house that you can sell for mid to low fours you’re not going to get hurt on that house. It doesn’t matter what happens with the recession. Even if they say it’s no signs of abating, probably true the volume is probably not going to be what it was two years ago or three years ago. But there are still people that need to buy a house. If you have a brand new home constructed properly offered at or around the median home price you’re probably not going to get hurt on that deal and you can make a little bit of a profit. This may not be really important right this second, because there’s still a backlog of work.
Look we’re talking to a lot of subs. We talked to a roofing sub two days ago. That has a 12 to 14 months backlog. If you book them right now he can probably get to it by the end of 23 may be the beginning of 24 for a roofing job. He’s booked. That’s good. But at some point, this backlog has started to erode away. So maybe if you have property or you can go to a property on auction or lock up a property start putting in the permits. It doesn’t cost much for permits. A few grand start putting in some design work, maybe site work you know in between doing other jobs you can scratch around with your excavator. You probably don’t want to start digging septic systems or pouring concrete but at least start to get the lot ready so that if the beginning of 23 or the middle of 23, there’s an opportunity to knock out a house you’re ahead of the game. You’re not six months behind on permits and approvals. So even though it’s counterintuitive a lot of you might say you’re crazy there might be a really good time to build some medium price out. You’re not going to build a below-market house it just costs too much to build between labor and materials, but you could probably build something in the four to 500 range depending on what the permit fees and development costs are in your area. That you can turn out a house and work on it in between your other jobs to keep all your equipment busy and keep your capital improvements amortized.