Dear MarketWatch,
We contracted with a contractor in Georgia to build us a house in a new building development here. We signed the contract in January 2021, and according to the contract we were set to close on the house in June or July.
Last week, the contractor’s Realtor called us to say they were canceling our contract and refunding our money. We were shocked. The Realtor said the reason is that materials had gone up in price.
However, our contract had nothing on it about an increase in the price of materials or anything. Now we are priced out of the market because he took five months. I’m sure he has since added a clause to his contracts about increases in material prices.
Now, where can we buy and move? Prices have really gone up since January.
Sincerely,
In a bind in Ga.
‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Jacob Passy at [email protected].
Dear Bind,
It’s very understandable that you’re frustrated by your situation. One minute, you figured all systems were go on building your dream home, and in the next minute those dreams quickly evaporated.
If it’s of any comfort, do know that you’re not alone. Like your household, families all across the country have jumped into the market for new homes. Many buyers have opted to go this route simply because there weren’t any existing homes for sale in their area, even though a new home can cost considerably more.
The cost of materials has gone up considerably for home builders in recent months. The price of the lumber used to frame homes has risen more than 300% since April of last year, according to the National Association of Home Builders. As a result, the price of a new home has increased by around $36,000 on average. And lumber isn’t the only supply in short supply — to say nothing of the labor shortages that contractors are facing to get work done.
Builders’ backlogs are growing because of all this, and some have even opted to pour the foundations for homes and leave them there for weeks until they can get a hold of lumber to continue building.
Anecdotally, some builders have taken the extreme step of canceling contracts with prospective clients like yours did, according to Robert Dietz, chief economist at the National Association of Home Builders.
“We’re certainly hearing more anecdotes of that occurring,” Dietz told me. “About half of all builders right now are using some form of price escalation clauses, where the buyer is sharing in the higher costs.”
I am surprised that your contractor did not attempt to negotiate with you to come to an arrangement where you took on some of the higher costs. Whatever the reason behind his decision, he owed you an explanation himself, rather than having his real-estate agent call you out of the blue to drop this bombshell. I am glad that he returned your deposit at the very least so that you didn’t lose money on this.
“ About half of all builders right now are using some form of price escalation clauses, where the buyer is sharing in the higher costs. ”
To your ultimate question, I have to admit that I’m hesitant to suggest you keep searching for a home to buy right now. You don’t say whether you’re a first-time home buyer, or simply looking to move to a bigger home. You also didn’t mention how much the new home would have cost — but I’ll assume that you went that route because there weren’t many (or perhaps any) existing homes for sale where you were planning on living.
Prices have certainly risen a fair amount since you signed your contract — nationally, the median listing price for a home as of May was $380,000, up from $346,000 in January, according to Realtor.com. That’s a nearly 10% jump in the span of four months.
“ The median listing price for a home as of May was $380,000, up from $346,000 in January. ”
From your letter, I can’t tell whether you are cash-strapped or merely price-conscious. If it’s the former, I would advise against buying a home right now. Owning a home is a major responsibility, and the consequences for falling behind on your monthly mortgage payments, property taxes and/or utilities can be severe. You want to make sure you can keep up with the monthly costs — and have enough money left over to build a rainy day fund. You don’t want to get in over your head.
If you’re merely being considerate of prices, there are plenty of towns across Georgia that may fit the bill. I used MarketWatch’s “Where Should I Retire” tool to investigate which locations across the Peach State may be to your liking — by and large, your best bet is to explore the more rural parts of Georgia. In Alma, for instance, the median home price is only $108,000. If you’d rather live north of Atlanta, the median home in Homer only costs $225,000.
Still, your best bet may be to wait and see if more homes come on the market. Data from Realtor.com has shown growth in the number of home listings. Should that trend continue, you may have more options to choose from, and might not need to spend as much to score a deal.
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