Home Construction Cost Expectations for 2023

If you are planning to build a custom home in 2023, you may be wondering how much it will cost and what factors will affect the price. Building a new home is a major investment that requires careful planning and budgeting. In this article, we will explore some of the trends and challenges that may impact home construction costs in 2023, and provide some tips on how to save money and get the best value for your dream home.

How Much Does It Cost to Build a Home in 2023?

According to Real Estate Witch, a partner of real estate education platform Clever, the median price to build a house from scratch in 2023 is $446,000, not including the price of land. However, this estimate can vary widely depending on the size, design, location and quality of your home. The cost of building a home also depends on the type of construction method you choose, such as stick-built, modular or panelized.

The cost of building a home can be broken down into three major components: materials, labor and margins. Materials costs include the cost of land, permits, utilities, site preparation, foundation, framing, roofing, windows, doors, insulation, drywall, flooring, plumbing, electrical, HVAC, appliances, fixtures, and finishes. Roofing, in particular, plays a crucial role in both cost and durability. Homeowners looking to balance quality and affordability often seek out top-rated roofing services in Miramar Beach to ensure their new homes are equipped with long-lasting, weather-resistant roofs that can withstand coastal conditions.

According to CBRE, a commercial real estate services firm, construction costs are expected to rise by 5.4% in 2023. However, this could be limited to 2.7% if there are delays in construction projects due to higher interest rates and slow economic growth. CBRE also predicts that materials costs will stabilize as supply chain disruptions ease, but labor costs will increase as demand for skilled workers exceeds supply. Margins are expected to increase as contractors try to recoup higher input costs absorbed in 2022.

What Factors Will Affect Home Construction Costs in 2023?

There are several factors that may affect home construction costs in 2023.
Some of them are:

• Interest rates: Interest rates have a direct impact on the cost of borrowing money to finance your home construction project. Higher interest rates mean higher monthly payments and more interest over the life of the loan. Interest rates have risen sharply in 2022 due to inflation and economic uncertainty. The Federal Reserve raised its key interest rate by one quarter of a percentage point on May 3, 2023, and signaled that it may pause rate hikes for the rest of the year if inflation continues to fall. However, mortgage rates are still expected to remain above 6% throughout 2023, which may deter some potential homebuyers and builders.
• Inflation: Inflation is the general increase in the prices of goods and services over time. Inflation reduces the purchasing power of money and makes everything more expensive. Inflation has been a major concern in 2022, reaching a 40-year high in June. It was fueled by ongoing supply chain snarls brought on by pandemic stresses as well as Russia’s invasion of Ukraine. As a result, prices jumped on key construction materials such as cement, diesel and asphalt. Inflation may ease somewhat in 2023 as supply pressures subside and economic growth slows down , but it may still remain above the Fed’s target of 2 % .
• Supply chain: Supply chain refers to the network of suppliers, manufacturers, distributors and retailers that deliver goods and services from their source to their final destination. Supply chain disruptions can cause delays, shortages and price increases for construction materials and equipment. The global supply chain has been severely disrupted by the COVID-19 pandemic since early 2020 due to lockdowns, travel restrictions, labor shortages and increased demand for certain products. Some of these disruptions have eased as vaccination rates have increased and restrictions have lifted, but some commodity shortages may persist in 2023 due to geopolitical tensions and environmental issues.

• Labor market: Labor market refers to the availability and cost of workers who have the skills and experience needed for your home construction project. Labor market conditions can affect the quality, speed and price of your project. The U.S. labor market has been tight for several years due to low unemployment rates and high demand for skilled workers in various sectors. The pandemic has exacerbated this situation by causing many workers to quit their jobs or retire early due to health concerns or personal preferences. This has created labor shortages and wage pressures for many industries including construction. Finding qualified contractors and subcontractors may be challenging and costly in 2023.

According to the Bureau of Labor Statistics, the U.S. construction industry was short 413,000 workers as of December 2021, and the manufacturing sector was short 764,000 workers. The construction industry will need to attract nearly 650,000 more workers in 2022 and nearly 590,000 new workers in 2023 above normal hiring levels. The shortage is not only of labor, but also of skills . Over 40% of the current U.S. construction workforce is expected to retire over the next decade, and the current shortage of some 430,000 construction-industry workers is fully expected to expand over the next two years.

• Housing market: Housing market refers to the supply and demand for existing homes in your area. Housing market conditions can affect the feasibility and profitability of your home construction project. The U.S. housing market has been hot for several years due to low inventory levels and high buyer demand driven by low mortgage rates and demographic shifts. However, the housing market may cool down in 2023 as interest rates rise and economic growth slows down.

According to Zillow, the median existing-home sales price declined 0.9% to $375,700 in March compared to a year ago. This is the second consecutive month of year-over-year home price declines after a 131-month streak of record increases. However, total existing-home sales dipped 2.4% from February to March and are down 22% from a year ago. Zillow forecasts that home prices will grow by 4.8% in 2023, down from 16.7% in 2022. Home sales are expected to decline by 7.9% in 2023, after rising by 5.9% in 2022.

How to Save Money on Home Construction Costs in 2023?

Building a new home can be expensive, but there are some ways to save money and get the best value for your project. Here are some tips:

• Plan ahead: Planning ahead can help you avoid costly mistakes and delays that can inflate your budget. Start by defining your needs, wants and budget for your home. Research different types of homes, designs, materials and contractors that suit your preferences and goals. Compare prices and quality among different options and get multiple quotes from reputable builders. Review your contract carefully and make sure you understand what is included and what is not. Have a contingency fund for unexpected expenses or changes.

• Choose a simple design: A simple design can reduce the complexity and cost of your home construction project. Avoid unnecessary features or details that add little value or functionality to your home. Opt for standard sizes and shapes for rooms, windows, doors and fixtures. Choose a rectangular or square floor plan rather than an irregular or curved one. Avoid excessive height or slope on your roof or foundation.

• Use prefabricated or modular components: Prefabricated or modular components are parts of a home that are manufactured off-site and assembled on-site. They can save you time and money on your home construction project by reducing labor costs, material waste, transportation costs and quality issues. Prefabricated or modular components can also offer more design flexibility and customization options. However, they may not be suitable for every site or style of home, and they may require special permits or inspections.
• Reuse or recycle materials: Reusing or recycling materials can help you reduce the environmental impact and cost of your home construction project. You can source materials from demolition sites, salvage yards, thrift stores or online marketplaces. You can also use materials that are made from recycled or renewable sources, such as reclaimed wood, recycled metal, bamboo or cork. However, make sure that the materials you use are safe, durable and compatible with your design and building codes.
• Negotiate with contractors: Negotiating with contractors can help you get the best deal and service for your home construction project. You can negotiate on the price, scope, timeline and quality of the work. You can also ask for discounts, incentives or referrals from contractors. However, do not compromise on the quality or safety of the work, and do not pay in full until the work is completed and inspected.

Building a new home in 2023 can be a rewarding and exciting experience, but it can also be a costly and challenging one. Home construction costs are expected to rise in 2023 due to various factors such as interest rates, inflation, supply chain, labor market and housing market. However, there are some ways to save money and get the best value for your project, such as planning ahead, choosing a simple design, using prefabricated or modular components, reusing or recycling materials and negotiating with contractors. By following these tips, you can build your dream home without breaking the bank.