New Construction Article- Interesting

By June Fletcher

Question: We are considering building a home with four bedrooms and three and one-half-bathrooms in suburban Pittsburgh. We have been looking at resales as well, but have not found anything we really like. Is now a good time to build? With interest rates falling, does the cost to build follow suit?

-- Brad A. Funari, Pittsburgh

Brad: Interest rates have a big impact on how much you can borrow, but they don't have that much direct influence on the cost of construction or on how much of a deal you can get from a builder. Other factors are more important.

One is the builder's size. Stuck with cancellations, downward-spiraling revenues and abysmal sales, big national builders currently are being pressured by investors and Wall Street to move their merchandise everywhere they build -- fast. For instance, the Greater Pittsburgh New Homes Gallery of K. Hovnanian Homes recently offered 5% off the base price, plus 20% off options for homes in its Classic Collection, which can be built on your lot or theirs. It isn't uncommon for big builders to offer such incentives when times are tough, but if their bottom lines improve over the next year -- as some builders, including Hovnanian expect will happen -- expect the goodies to evaporate overnight.

Small, local builders don't feel these pressures from investors, and may not be as inclined to make a deal.  In fact, some Pittsburgh custom builders have been doing very well lately: Chris Cinker, general manager of S&A Homes, says sales for his company actually rose from 51 in 2006 to 96 in 2007. He is, however, affected by land prices (they've been rising in the most desirable areas) and labor costs (they've been falling, since subcontractors who aren't getting business from big builders are more likely to negotiate). Overall, the land disadvantage and the labor advantage have been canceling each other out, Mr. Cinker says, which is bad news for bargain-hunters. "Our prices have remained stable," he says.

Another factor to consider is the cost of materials. Bernie Markstein, staff vice president of forecasting and analysis with the National Association of Home Builders, says that while costs haven't risen dramatically for single-family homes, the price of copper, steel, cement and fuel have all gone up over the past few years, while prices for lumber, gypsum wall board and insulation have fallen. Overall, material prices for new single-family construction rose 2.4% in 2007 over 2006; they rose 6.4% in 2006 from the year before.