Buyers Archives - Page 9 of 29

What’s it cost to build a house around here? (2022)

April 2, 2022 By Tayson Rockefeller Leave a Comment

I’ve always got to start with my typical disclosures. I’m obviously not a builder, but I work closely with builders and stay in touch with customers that have projects in the works. I always tend to have a few projects going on myself, as well.

I wrote an article back in 2015 with information about my experience with the cost of construction. As you probably already know, things have changed quite a bit since then. In addition, a good portion of my 2015 project was sweat equity. I later constructed another small home in 2017, and I should have updated this article then as I relied more heavily on subcontractors, though I acted as the general contractor in both circumstances. I later again acted as my own contractor during an extensive remodel of my 1980s home, and I am currently closely involved in a project with a general contractor.

Getting back to the nuts and bolts, the cost of construction has gone up pretty dramatically. Obviously there are a few things at play here including material costs, supply shortages on both materials and labor, not to mention the cost of living which has changed pretty significantly since 2015. This definitely trickles down to the cost of labor as well. To have some fun, I looked at some of the material costs from my previous projects. I decided to use 7/16 OSB or sheeting as my “gold standard”. That may not be totally accurate across the board for all lumber and materials, but it’s a good indication as to what’s going on.

7/16 OSB, 2015-2022
2015: $9.22
2017: $14.71
2021: $23.99*
2022: $60 +/-

Materials
To be fair, that 2021 price is… not fair. If you were watching, you might remember there was a lumber bubble that popped in the Fall of 2021, and we all thought that may be a tipping point on material costs. That assessment was incorrect, as things jumped right back up to a high point, and continued that trajectory. The interesting point was how much that drop in lumber prices could impact a typical 2000 square foot home. The answer (in rough numbers) was about $15,000. Obviously some great savings in that scenario, but it’s probably not going to make or break the bank in the scheme of a large (or even a small) project. When we look at all material costs, you can see where it all starts to add up. Virtually everything is in high demand and is experiencing some sort of shortage. Appliances, tile, drywall, copper, plumbing materials, whatever. When you add it all up, it’s pretty significant.

Labor
As mentioned, the cost of living and therefore the cost of labor trickles down to costs; and can have a pretty significant impact on them. If a concrete company’s cost of labor goes up 20% because the cost of living is up 20% (realistically more) the contractor can’t just absorb that cost. Here again, concrete, framing, roofing, mechanical/electrical/plumbing… the list goes on. The biggest contributor to the issues described?

Supply and Demand
Supply of rental homes is extremely low. Supply of existing homes for sale is low. Materials, labor, contractors, everything is in low supply. Demand? You guessed it, through the roof – pun intended. While the lack of supply has a direct impact on the cost of materials and labor, there are indirect costs as well. If I can sell my used car for 10% more than I paid new, I am absolutely going to do that. In addition, I think there is likely some price gouging going on out there. Regardless, the bottom line is that people in small communities make their living when the economy is doing well. I’m not just speaking for myself when I talk (or think) about slow times.

What gives?
It’s interesting to read articles about economic cycles and what seems to be a universal opinion that times are different in terms of a potential real estate recession. Supply is still extremely low today. However, while leading up to the recession in the mid-2000s, supply was out of whack. Regardless, I’ll never make a steadfast economic prediction – and I’ll never promise that a recession won’t happen. That said, I do believe that rising interest rates will create some affordability issues (who am I kidding, there are already pretty significant affordability issues) that will tamp down the demand for construction which is already expensive. I also believe that notwithstanding prices rising so quickly, I do believe the pandemic created some shelter, keeping things in control because costs increased so significantly. With these changes in our economy, we can only hope to see some relief to balance the market. If this occurs, it will undoubtedly help stabilize some of these crazy construction prices.

Okay, I’m done blabbing about the stuff you probably already know.

So what’s it cost?
I didn’t reread my article, but I recall building my first project pretty affordably, keeping in mind that I did so much of that work myself. Costs obviously went up in 2017, and I do remember it getting more difficult to line up contractors – there was quite a bit more construction happening then. A few other considerations, some builders calculate a basic garage in their square footage cost estimate and I think you could accomplish that with the numbers below assuming modest construction, keeping in mind that Teton Valley’s modest construction tends to be a little on the “higher end” side of things including better heating systems, insulation, etc. Most of the contractors here use 5/8 drywall, 12 gauge wiring, and so on.

The Numbers

2015: $250/SqFt
2017: $310/SqFt
2022: $420/SqFt

2021 Residential Year End Sales Report

February 16, 2022 By Tayson Rockefeller Leave a Comment

While the number of residential sales is down compared with 2020, the average sales price is a completely different story. Almost unbelievably, the average sales price in Teton Valley has more than doubled since year end of 2018, and has surged above $1m by the 3rd Q ’21.

Building Costs
Building costs have played a major role with respect to residential home prices, keeping inventory low and not giving spec home builders a confidence to meet the demand of new buyers to the area. It’s hard to quantify how much building costs have risen, but personal experience and interviewing with a few builders confirms my thoughts of somewhere in the range of 50 to 60% since 2020, somewhat consistent with the increase in the average sales price from 2020 to 2021.

2021 Year to Date
As with all market reports it’s important to look at both average sales prices as well as median sales prices that better indicate realistic numbers for middle of the road properties. A few key takeaways include the average sales price growing steadily quarter by quarter in 2021, but the median sales price reducing slightly in the fourth quarter, which is consistent with what we saw with 2021 land sales as well. Here are the numbers:

2021 Average Sales Price
Q1: 694,900
Q2: 966,655
Q3: 1,005,521
Q4: 1,093,040

2021 Median Sales Price
Q1: 558,429
Q2: 664,000
Q3: 724,950
Q4: 649,000

Predictions
This will probably sound a lot like all of those National news articles you’ve been reading, but most expect these unusual market increases as well as demand to subside back to normal rates sometime in 2022 due to supply chains catching up and interest rates increasing. With respect to our micro market, it’s hard to say when that will happen. Building costs remain high, lumber futures are again on the rise, and most builders are backlogged for the next 18 months or more. If we do see stabilization throughout the Nation, my suspicion is that it will take some time for Teton Valley to follow suit.

2021 Land Year End Sales Report

December 19, 2021 By Tayson Rockefeller Leave a Comment

It’s that time of year again and it’s always fun to see the data. A friend suggested I prepare this in a graph style format. Naturally, I researched data from 2006 to date. For those of you reading the article as opposed to my blog or newsletter, you can probably already picture the trajectory of that graph from a high point in 2007, a low point in 2009, stagnation from 2010 to 2014, slow but increasing improvement to 2019, followed by a sharp increase in 2020. Here are my takeaways;

2008: There were 102 sales in 2008 compared to only 55 sales in 2009. Interestingly, things fell off later in the year, seeming to lag behind the rest of the Nation’s real estate trends.

2009-2012: The official recession had long been over by 2012, though land hadn’t seen much improvement in terms of the number of sales or the average sales prices during this time. These are the years with opportunities we likely won’t ever see again. I don’t attribute all of 2020’s massive gains to the usual pandemic related craze, I have always believed that land was too cheap for too long in the area.

2013-2018: This was the slow recovery stage I mentioned. It’s almost silly to think that any portion of the real estate market was still recovering this long after economic decline, but still, land prices were far cheaper than large tract land acquisition and development costs. As a result, inventory dwindled despite a huge oversupply that was attributed to the long-lasting “bargain” period.

Q1 2019 vs Q1 2020: In order to get a bit more quantifiable data I actually ran this report December 1st through March 1st (I didn’t want the pandemic in March of ’20 to impact this observation) and found that 2019 saw 37 sales with an average sales price of $188,896. One sale during that time at $3m had a big impact on that average, the median sales price was $72,000. 2020 saw 52 sales with an average of $73,064 and a median sales price of $59,000. I found it interesting that the number of sales for that quarter increased in 2020 but the median sales price decreased. For those of you looking at the graph and seeing the average sales price dip in 2020, this is likely due to the large aforementioned $3 million dollar sale that boosted that average just prior. With both land and residential the opportunity for a bargain post-pandemic before the real estate market took off was extremely short-lived. There were a few deals to be had during that time, but not many.

2021: Most real estate agents with a close ear to the ground will tell you that they feel the land market has peaked and things have stabilized as of the time of this writing, end of 2021. When looking at the data by quarter, the median sales price was Q1: $145,000, Q2: $150,000, Q3: $175,000 and Q4: $173,500. Obviously still some growth in there (until Q4), but nothing Earth shattering like we’ve been seeing.

Final Takeaway: A final interesting point should include sales prices in 2007 versus today. Interestingly, what they were nearly 15 years ago. In addition, we’ve seen 15 years of inflation and one of the hottest real estate markets in recent history. The bottom line? I believe real estate prices are currently where they should be. Bargain? No. Overvalued and otherwise a bad deal? In my view, no.

Measuring the Value of Land by Price per Acre

November 28, 2021 By Tayson Rockefeller Leave a Comment

I have been meaning to draft this article for quite some time, it is one of those articles that’s relevant in any market. That is, valuing a particular piece of property based on a cost analysis per acre. This is a measure that we will sometimes use when valuing large farm acreages. For us working in the industry, that’s usually where it stops. For others, that methodology trickles down into residential property which in my opinion, is usually not appropriate. I share this opinion with most when discussing values, but usually when customers, be it Buyers or Sellers, start forming their own opinion it’s hard to get them to change their perspective. For Buyers, it’s a way of arguing the value down, and for Sellers the opposite. I’ve heard this a few times…

Anyway. A local analogy I often use as an example is a development between Driggs and Victor. It’s really one large interconnected development with two phases, but it was organized as two separate adjoining developments that share the same rules and regulations. The East half/development comprises 2.5 acre lots and the West half comprises 1 acre lots, but there’s a catch – an important one. The current county density requirement in this area is one home (and guest home if the subdivision allows) per 2.5 acre parcel. The average density of the East development is obviously 2.5 acres. The West development also has an average density of 2.5 acres. Each 1 acre parcel is surrounded by community-owned open space that cannot be developed. Currently on market is a $190,000 1 acre parcel and a 2.5 acre parcel nearby priced at $109,000 per acre. Does that mean that the one acre parcel surrounded by open space is only worth $109,000? Obviously not.

Okay, so the above example is easy to justify. Let’s move across the valley into the Teton View corridor. To keep things fair, we need to keep the area similar. Properties East of State Highway 33 should be valued differently than those West of side of the highway. Let’s compare parcels in developments with no open space, one parcel being 2 acres and another being 5 acres. Am I saying each of these have the same value? No, but they certainly could. What I am saying is that if I were asked to value each of these parcels I wouldn’t even look at the cost per acre (yes, I would look at the overall size) of nearby listings or sales. The important thing to remember here again is that each parcel allows ONE primary home. I could compare 2.5 acre parcels with 5 acre parcels in the primary view corridor all day long and would probably find more 2.5 acre parcels that I would recommend to customers regardless of overall price or price per acre. I’m going to look at budget, proximity from the highway, property features, overall development value and restrictions and of course, the viability of an unobstructed view down the road. In other words, is it conceivable that I would value a 2.5 acre parcel and a 5 acre parcel the same? Absolutely. Does it mean I don’t take the size of a parcel into consideration? No, it does not.

The important thing to understand when determining or justifying the value of any given tract of vacant land is to remember to look at the entire picture. A 2.5 acre parcel overlooking 200 acres of an adjacent development’s open space has tremendous value. Trees, creeks, undulation in terrain, community features and amenities AND size – all of these elements should dictate the value of a parcel. It is not fair or reasonable to value any given property using just one of these metrics.

Recent Testimonials