LEE'S SUMMIT, Mo. — Whether you're buying or building a new home, be prepared to pay more due to rising interest rates.
The Jewell family decided to build their brand new Lee's Summit home a year ago. They say the value of a new home gave them peace of mind that to them is priceless.
“You get what you want in a new home with all the costs up front instead of buying an older home and trying to fix it and dealing with things that break,” Holly Jewell said.
Their home was estimated to be built within nine months, but supply chain issues increased the build time to a year and drove up their costs, with lumber costing them an additional $17,000.
“We were nervous, but financially we made it work and we were smart about it,” Jewell said.
The Home Builders Association of Greater Kansas City (KCHBA) says due to supply constraints, labor shortages and interest rates, the price of new homes continues to increase and are taking longer to build. The association estimates homes that would have previously taken seven months to build are now taking 14 to 16 months to complete.
“It’s a matter of pay more for a new home or to potentially pay more to own an existing home, it’s really not a matter of avoiding the costs altogether, it’s when do you want to pay it,” KCHBA Executive Vice President Will Ruder explained.
According to the National Association of Home Builders, a new home one year ago in Kansas City would have had a median price tag of $327,165. Now the price for the exact same build is $406,503. Nationally the average costs for a new home is $412,505.
However, interest rates are affecting affordability. When interest rates were in the 3% range a year ago, the monthly mortgage payment on a $412,505 home would have been $1,715, but now with mortgage rates nearing 7%, that monthly mortgage payment is at $2,655.
“It's just concentrating the buyers into existing product which drives up prices, and if those prices rise to significant level as they as they have recently, then that's going to put more intense competition for apartments and rental properties, which is going to drive up rental rates,” Ruder said.
Builders like SAB Homes say they are looking at purchasing directly from suppliers to decrease costs and are having frequent conversations with their clients on rising costs.
“We're doing our best to try to keep prices down...there's only so much we can do,” Greg Cox with SAB Homes said.
If you’re interested in building a new home, KCHBA recommends having a conversation with a home builder because at times they do offer flexible financing and a variety of different contracts.
“The new home construction industry is probably the most interest rate-sensitive industry in the country, so as interest rates rise, the ability for them (builders) to add inventory at the rate again that the market is calling for,” Ruder said.