Why Waiting to Build Your Custom Home Could Cost You More: Insights on Interest Rates and Construction Costs
In January 2023, I shared insights about how rising interest rates shouldn’t discourage prospective custom homebuyers. Two years later, this perspective holds even more relevance as interest rates and construction costs continue to evolve. Let’s take a closer look at how these factors have shifted and why waiting may not be the best choice.
Interest Rates: Then and Now
At the start of 2023, the average 30-year fixed mortgage rate was approximately 6.5%. By January 2025, this rate has edged up to around 6.9%. Similarly, 5-year adjustable-rate mortgages (ARMs) have increased from 5.4% to an average of 6.5%.
These steady increases suggest that waiting for a significant drop in rates may not align with realistic expectations. While fluctuations in mortgage rates are natural, the gradual rise over the past two years underscores the importance of acting when circumstances align with your long-term goals.
Construction Costs: A Steady Climb
Construction costs have continued to rise, reflecting an average annual increase of 4-5%. For example, a home priced at $1,000,000 in January 2023 would now cost approximately $1,090,000. This growth is driven by rising labor costs, material expenses, and inflation.
The Cost of Waiting
Delaying a home purchase can be more expensive than many realize. Here’s why:
Financial Costs
Higher Construction Costs:
Over the past two years, construction costs for a $1,000,000 home have risen by $90,000. If this trend continues, the same home could become even more expensive in the coming years, diminishing the purchasing power of buyers who wait. Buyers who delay risk missing the opportunity to lock in current construction prices, which are unlikely to decrease significantly.
Marginal Interest Rate Increases:
While mortgage rate increases have been modest, they still lead to higher monthly payments over the life of a loan. For instance, a 0.4% rate hike on a 30-year fixed mortgage can translate into thousands of dollars in additional interest payments over time.
The Opportunity Cost of Not Enjoying Your Home
Waiting to build your dream home isn’t just a financial decision; it’s a lifestyle decision. By staying on the sidelines:
Lost Memories: Each year spent waiting is a year not spent creating memories in the home you’ve envisioned. Whether it’s hosting family gatherings, decorating for the holidays, or simply enjoying a space designed for your needs, the cost of delayed happiness is immeasurable.
Missed Lifestyle Upgrades: A new custom home often offers improved energy efficiency, smarter layouts, and features tailored to your preferences. Living in a space that doesn’t meet your needs or desires can negatively impact your overall quality of life.
Time Value of Enjoyment: Just as money has a time value, so does the enjoyment of your home. The sooner you build, the sooner you can begin reaping the benefits of a space designed to enhance your daily living.
Future Market Uncertainty
Finally, there’s the uncertainty factor. We simply don’t know what interest rates will look like in the future. As for construction costs, history has shown that they are far more likely to rise than fall. In fact, over the past 50 years, construction costs have only decreased year over year in two instances—2009 and 2010.
By waiting, buyers’ risk being priced out of the market or compromising on their vision due to higher costs or tighter financial constraints.
Looking Ahead
The data clearly illustrates that waiting for a significant drop in interest rates or construction costs is not a strategy likely to yield meaningful benefits. Financial costs have continued to climb, and the intangible costs of postponing your dream home—missed memories, lifestyle upgrades, and the enjoyment of a space uniquely your own—add up quickly.
While I know I’m a homebuilder and likely biased in this thought, the tradeoff is really uncertainty for certainty. The uncertainty of future rates and costs versus the certainty of increasing your family’s lifestyle by building the home you’d love to enjoy.
The content and representations on this Builder’s page/microsite are solely that of the Builder and are not a representation by AR Franchising, Inc.