How to Build a Dream Home During a Recession

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Why did we build a house when buying an existing one would've been cheaper? It was an emotional decision, but my husband and I learned a lot. Too bad we didn't save a lot.

When my husband and I started looking for a new house in the middle of a recession, we did something hardly anyone was even thinking about – we decided to build one.

Reactions from friends and family ran from, “You’re crazy!” to “Hey, you’ll probably save a ton of money on construction costs!”

They were both wrong.

At our very first meeting with our builder, we asked how he could compete with the rock-bottom prices for existing houses already on the market. His reply: “I can’t.”

While home prices are in a free fall, the cost of materials isn’t. Many essential materials that go into building a house are now more expensive than they had been during the heady days of the building boom. Lumber, for instance. “Production has dropped in the face of weak demand – and dropped so much that prices have moved much higher,” reports the Daily Markets website.

The same thing has happened with the prices of steel and sheet metal used for ductwork in HVAC systems – when demand dropped, so did manufacturers’ supplies.

Compounding the problem: the tightening credit market and the increasingly conservative nature of appraisals (after years of appraisal fraud). So while interest rates are low, that’s only useful if we can qualify for a mortgage and come up with at least 20 percent down.

The one question the builder didn’t ask us: So why are you doing this in the first place?

Financially, it just doesn’t make sense to build. But as any homebuyer knows, this is also an emotional purchase. My husband and I wanted a woodsy style of house with specific finishes and trims. We’d looked for houses for weeks and found nothing on a lot we liked – and if we remodeled, we’d be right back to facing the high cost of materials for the project.

So we decided building made more sense. We’d spend more per square foot, but each foot would be perfect for our needs – no wasted space. And since we plan to live there for the rest of our lives, the extra we’re spending up front would be amortized over 30 years.

We’re almost done, with a move-in date of just a few weeks. If you’re thinking about doing what we did, here’s what we’ve learned so far…

1. Avoid the architect

Just because you’re building a new house doesn’t mean you have to start from scratch. We used a floor plan our builder had built before, but we modified it slightly to fit our needs. That way, we didn’t have to hire an architect.

We found our builder simply by looking at homes he had built that were for sale and that we had considered buying. We didn’t do the in-depth research we should’ve – we ought to have gone down this checklist from MSN – but we got lucky. Now many months into our build, we’ve seen his impeccable work and heard good things about him from his subcontractors.

2. Custom work can save you money

One of the most shocking things we discovered was that sometimes, going custom is actually more cost-effective. The price of our solid-wood, fully custom cabinets from a top-quality local cabinetmaker was tens of thousands of dollars less than a somewhat comparable (and lesser-quality) cabinet from stock cabinet companies.

And our custom-made concrete farmhouse sink also cost less than fireclay and cast iron options from some of the big-name plumbing brands.

The reason for the low cost: low overhead. The sink maker has a workshop in his yard and just a simple Web page. Our cabinetmaker has a small showroom – and no website at all. We found them by word of mouth, as most of their customers do. There are no middlemen earning a commission or big advertising budget to support, so the savings are passed on to us.

3. Online shopping works even for building a home

Shopping the Internet also helped us to save significantly on some niche items –like 90 percent off on clearance balusters. Stacking coupons and cash-back offers also helped save significantly on light fixtures, as did online overstock stores.

All in all, though, building a new home during a recession is far from a bargain. The risks of getting a builder down on his luck, the cost of raw materials, and the chance of a home not appraising for what it costs to build are high. Still, if you can swing it in a recession, there’s nothing quite like a custom-built home.

Stacy Johnson

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