There’s a new trend among entrepreneurial homeowners navigating the current housing market. 

More and more of them are deciding that it makes sense to build their home instead of trying to buy an existing one.

Historically, building instead of buying was a path most often taken by seasoned homeowners looking to customize their dream home. But today, many younger and even first-time home-buyers are finding it’s the most viable way for them to get on the housing ladder. And now new construction is the highest proportion of total housing activity we’ve seen in decades.

Even so, it’s an option that many people have questions about - and understandably so.

Below I’ll cover why it makes sense to build, how to assess whether it’s right for you, and provide a resource for navigating the process.

Why it makes sense to build

2023 was one of the most challenging housing markets in 30+ years.

The reasons are pretty well-documented. But in short, there’s a lot of demand and not a lot of supply.

On the demand side, Millennials are the largest generation in American history, and they’re just now becoming prime home-buying age with Gen Z a little ways behind them.

Percentage of homeowners by age and generation

Demographics drive housing demand, and demand for homes is set to remain strong in the coming decades.

And that demand is running up against a lack of inventory, because existing homeowners can’t afford to sell. They’re locked in with 3% mortgage rates.

Distribution of Mortgages by Rate

They’re also sitting on a pile of home equity and some nice little capital gains. So the supply side is constrained.

And even if you can find a home you can afford, you might not feel like it’s the one.

That’s because much of the US housing stock was built for a very different era. The median age of a US home is around 40 years old. In some areas, like in the Northeast, it can be more like 60 or even 70 years old.

Age of median housing stock by age

You can find homes in attractive locations with really good “bones”, but they might need a substantial renovation. In other markets, you might not find anything to your liking.

In response, more and more buyers are deciding that the right choice is to start from scratch.

How to assess if building is right for you

There’s no getting around it: ground-up construction or substantial renovation projects can be complicated and time consuming. Compared to buying an existing home, there’s more uncertainty with regard to the costs and more complexity with regard to the process. But for some of us, that can sound sort of… exciting?

Are you the type of person who likes to learn, make decisions, and run big projects?

More practically, are you in a position in your life where you can take on the added stress and time commitment that the project will require?

If the answer to these questions is “yes”, then a construction or renovation project might be a good fit.

Here are a few things to consider:

Pros:

• You get to channel your inner architect
• You get to customize everything about your home
• You’ll have lower maintenance costs
• You won’t have to deal with unreasonable sellers
• You won’t have to deal with bidding wars
• You won’t have to pay top dollar for a home that’s sort of just…meh

Cons:

• If you’re not careful, you may run into cost overruns
• Things happen - it might take longer than you think
• You’ll need to make a large number of decisions
• You’ll need to manage a large squad of service providers
• You’re putting a lot of trust in the builder/general contractor

Like any big decision, it comes with tradeoffs. But a lot of folks who are choosing to build are unlocking value. Many of them are also unlocking an interesting experience and a space that has meaning in their life.

A resource for those thinking about building

Like any entrepreneurial venture, building a new home requires assessing your readiness, setting a vision, and building a team to execute.

Here are the first steps to get the project rolling:

1. Self Assessment: As mentioned above, the process for building or renovating a home starts with self-reflection. Do you like managing large complex projects? And are you in a position in your life where you have the time to take this on? 
2. Budget: If the answers above are “yes”, the next step is assessing your budget. What’s a realistic amount you can afford? Part of assessing this can emerge from the process of getting a mortgage for your project. A good loan officer should function as your financial advisor for the whole project: they should partner with you on setting a budget and making sure your plans are realistic relative to your budget. And of course they should help you get the loan.
3. Plans: You have a major choice to make: do you want to use stock plans from an online catalog, or do you want to engage a licensed architect to develop the plans for a custom designed home? The latter can be much more expensive and time-consuming, but it can enable you to get exactly what you want in your home.
4. Builder: Once a budget and plans are in place, it’s time to select a general contractor to oversee the project end-to-end. The GC will hire quality sub-contractors and ensure that the home is built according to the plans. They’ll also order and manage delivery of all building materials and manage permitting and inspections.

There’s much more to the process, but these are the four steps to getting your project off the ground. If you’re interested in going deeper on the process for a new build, I recently published a comprehensive guide to new builds and renovations. You can check it out here.