We have a housing supply problem. Our supply problem is not unique to California, has multiple root causes and no signs of improving. Recently I participated in a Western States housing supply webinar that discussed both the existing and new home supply in Metro areas from California to Colorado. Whether it is Los Angeles, Los Vegas, Phoenix, Denver or Salt Lake City metro areas the studies show that the current housing shortage is severe, and the shortages are projected to worsen over the next couple of years.
Future home building projects of both attached and detached homes for sale product do not “pencil”. Projected future costs outstrip the future home buyer purchase capacity. The projected cost increases are greater than 100% and are a result of price increases from cost of materials, cost of subcontractors, cost of insurance, cost of regulation:
- In 2008 the skilled construction work force was decimated and has not come back to meet demand. Experienced and skilled contractors are in high demand and the cost to employ a skilled worker continues to rise.
- Construction material costs continue to increase.
- Increasing government land development requirements. Soft building costs, incurred before a shovel is put into the ground, have ballooned to 25% of the cost of a new home. Developers hire consultants to help sort through the 300 item Federal, State, County and City development checklists.
- Regulation increases the building complexity; requiring a greater use of specialty designers, architects and engineers (soils engineer, civil engineer, structural engineer, geologist).
Are you or someone you care about looking for a new home? Whether you are looking for your first home, move up home, or, move down home; here are some actions you can take that may alleviate some of the house hunting challenges:
- Pay cash. Immediately refinance to reimburse yourself. A refinance within 90 days of a cash purchase is priced and treated very similar to a purchase.
- Get Pre-Qualified. Mortgage pre-qualification letter is required with all home purchase offers. When sitting down with your loan officer you will become familiar with the purchase finance process and have an opportunity to explore with your loan officer all finance options. The more familiar you are with your finance option the greater the probability your purchase offer will be accepted.
- Know the monthly cost of a higher offer. Most transactions are multiple offers and you may be asked to increase your offer. When negotiating, it helps to know that a $10,000 increase in sales price when putting twenty percent down results in only a $41 increase in monthly mortgage payment at today’s rates.
My hope is that you successfully purchase your next home. Your friends and family will tell you that you were lucky to secure a home in this tight real estate market. I say that luck is a combination of preparation and execution. And, I look forward to helping you prepare for your next home purchase financing so together we execute a successful home purchase finance plan.