The cost of materials has increased dramatically and when work for skilled trades drops instead of working at a loss and making it up in volume, people take up other work or move. The combination of high material cost and a shortage of skilled labor drives the cost of building a new home up pretty high in some areas.

Usually only an experienced developer knows where to build and how to build cheaply enough to make a profit at completion. You should only build for yourself if you are sure you will live there for 5 or 10 years and if you cannot find what you want for sale.

Thanks renovator, it just doesn't make sense. Seems to me that supply and demand would have both materials and labor cost down. Obviously, that isn't the case! I wish I could find what I want. I think I could save 30 percent versus new construction! Oh well, at least interest rates are low.

In my area (NC/SC) my contractor's prices increased significantly after hurricane Sandy.

I live in L.A. and if you assumed that labor costs would be low here, you would be very wrong. We do have a lot of cheap and mostly illegal workers, but the legal bosses benefit from that cheap labor and do not pass those savings onto their customers.

In this area in addition to high building costs, we also have very high land costs and there isn't much you can do to change/reduce that cost.

To my knowledge and experience building a home always has, and always will, cost more than buying an existing home. That said, the benefits of building are not to be forgotten: it is new, it is (mostly) what you want, and presumably it is where you want it.
The recent housing recession had the effect of eliminating both builders as well as some skilled trades people. Elimination of builders has made it possible for the remaining general contractors to modestly increase margins. The exit of skilled labor from the market has increased pricing in that area as well.

Material prices are also rising across the board. Framing lumber has increased about 40 percent over the last 6-8 months. This is unprecedented in the 30 years I have been involved in the business. Almost all the other material and fixture manufacturers are taking the opportunity to raise pricing 5-7 percent as the national market improves.

Improved building lots in subdivisions are soon to be a factor in home prices as well. A shortage is looming just around the corner. Financing for land developers to buy land and install the horizontal infrastructure (sewers, water lines, and roads) has been non-existent over the past 4 years. Consequently, almost no new lots were developed during this time. If the housing recovery continues, the cost of quality building lots in the right areas could easily increase 30-40 percent over the next 24 months until new supply comes online.

So yes, building costs are on the rise.

Why do you ask?

At some point low wages would come back to bite you, anyhow, either in poor quality or theft.

Building a new home is a luxury. Luxuries are expensive.

Zone4newby, your point is well taken. I'm not saying workers shouldn't be paid a fair wage, I am just having trouble understanding the economics driving the high cost. Ohbdlr states framing lumber has increased 40 percent in six months! This is occurring while new construction rates remain pathetic! So I was just curious as to the underlying cause. I guess the question was also asked out of frustration. We bought a lot without doing enough homework. We then learned that a the price for our nice, not high end, custom home is going to cost as much as the larger, all brick executive homes in our area.

newbie, I don't know where your are, but if you are concerned about selling an existing house so you can afford to build a new house you may not aware of the difference in price for exising houses and new houses in many areas of the U.S.

In many areas, the price of existing house stock is below that of comparable new construction. Thus, if one wants to build a custom house one must be prepared to pay substantially more than an existing house of similar size and quality.

Said differently, existing houses often offer the best economic value. New custom houses, on the other hand, offer a custom fit for one's life style and values.

This condition does not take into account the various influences on the residential market such as financing, land costs, construction materials and labor expenses, site improvement expenses, regulatory permits, fees, levies and other expensives and the like. All of these further impact the cost for building a new custom home.

Good luck on your project.

Many skilled workers headed for the jobs with repairs for Hurricane Sandy - including my handyman. That drives wages up here because of scarcity.

The demand for repair materials made a temporary spike in the prices of materials as far west as Phoenix.

There's a beautiful home built in '08 on 7 acres down the road from where I'm building, it's a 4 bed,4 bath, 3600 sq ft custom. Nice upgraded cabs, built in appliances, marble, granite, huge master, hardwoods, etc. They relocated and began the selling process more than a year ago. My area is very depressed and quite remote so homes are generally 20-25% less than the burbs 40 miles away. That said, they started w/an asking price of $489k (would be upward of $650 in town a few years ago which is pretty high for this part of the country). It is now listed @ $339k. My home, 2 miles down the road is 2700 sq ft finished living space and 2400 unfinished walk out with not quite as nice of finishes and is costing us ~ $420k to build on 30 acres. We started over a year ago, had we known, we probably would have just purchased that home and kept our property. We're very happy with the new build (though not yet moved in) but it makes terrible economic sense in this market. Our builder is lamenting the fixed contract as he will not make out very well on it considering the above mentioned increases in materials but is being pretty decent about it.

We just finished our home here in Southeast WI, about 15 miles north of Milwaukee. We pretty much did an owner build with my brother in law doing the GC for almost nothing. So I helped with a lot of the bidding and finding subs. Materials are what they are and like everyone stated, those are going up. But labor was another thing. At least around here, people must be hurting for work. We were shocked at some of the labor bids. We put ads out on Craigslist as well for certain portions such as framing and holy crap. I got over 100 calls in 2 days. Yes I know, Craigslist is what it is and we were careful and did our research. But it is a great tool. I noticed a huge difference from bids from the known builders that have been in the area for a long time vs more smaller companies that are made up of people that left the large ones cause of work load. They have no overhead and just want to feed their families.
We built a pretty simple 2500 sq ft ranch and we had ranges of 30K to frame to 9K. We ended up getting all framing, window installs, siding, roofing, and veneer stone installed for about 21K with more of a warranty than the larger builders. 4 guys started a company and they all came from one of the more high end builders in this area. Other areas of the build bids were a lot more on par with each other but a few trades we saw huge differences. It is crazy to see the difference of labor rates across the country.

Good luck on your build!

When the moderator deleted the Spammer my link got lost. Here it is again.

Here is a link that might be useful: The Disconnect Between Existing Home Values and New Construction Costs

Renovator thanks for the link. Great article! It seems if one decides to build during this strange economic time, then he better be prepared to stay in the house for a looong time. Otherwise, they will most certainly take a loss.

Around here...I think there is a pent up demand for custom homes. Our small neighborhood was developed by a custom home builder. When we bought our lot and built our house...it was the ONLY house going up. There were several other homes that people constructed during the height of the boom. We just happened to sell our house at the right time and took advantage of some great pricing on the lot. Well...flash forward two years...OMG!! The remaing lots are selling left and right...it seems like they are clearing a new lot a month. They are keeping the crew and subs completely busy. And the prices are back up. Not quite as high as at the peak, but definitely getting closer. We are just amazed...our equity has increased pretty nicely in 18 months! Of course, we aren't selling, so it
doesn't matter...but sure is a good feeling!