So would you say that environmental regulations double the cost of the large tracts of land? I’ve seen single lots for sale in Poway, and assume the buyer would make sure it was zoned for building prior to purchase. Is there a premium then on that lot too, because all land in SD has become more valuable? This would be an increase in the fundamental cost of a house, and I wonder how much of that will be reduced as housing prices go down. Although Phoenix and Las Vegas don’t have the environmental regulation we have, they are in a housing bubble also. So there it’s purely speculation that accounts for high prices?
How much has construction cost changed since the late 90s? We spent $168/sq ft to build our house, exclusive of land, and it wasn’t a very fancy house. We even used siding in place of stucco because it saved $10,000. Our construction period was summer 2004 – summer 2005. I did splurge on the kitchen, and we needed a long driveway w/ turnout for fire codes, but the grading and well and 1/2 the driveway were already done before. I wonder how much less that house will cost to build in about 5 years. We used inexpensive but good contractors; those with low overhead but many years in the business. I was surprised it cost so much, when I read in your post that it can be done by the big builders for half that. Do you think that high contractor demand caused them to charge much more? They told me it was the workers’ comp, which comes to 40% of their wages. I figured I could have saved 50% on the construction if I didn’t have to pay sales tax on the materials or workers comp on the labor.
I keep reading that baby boomers are driving the demand for second homes. Some even buy larger homes, sort of as a status symbol. Your observation that the buy smaller homes makes sense, and should be scary to all those builders and buyers who build/buy the ultra-large homes. Perhaps we will return to the homes of the 50’s, where a family of 5 was content to grow up in a 2bedroom/1bath house. At that time, the desire for status and keeping up w/ celebrities wasn’t as important. Increasing demand for smaller homes would be a market shift.
Your position of having your house paid off is very fortunate. If we’d had our house paid off, we wouldn’t have sold either.
When you say you have cash holdings, do you mean money market or CD? I checked w/ Vanguard, and the money market can hold GSEs. I’m concerned about the systemic risk of them going under, as Alan Greenspan alluded to, so I am pulling out of the money market. Am researching where to go instead. Euros, metals?
How much do you think housing prices will decline, and what will be the floor, due to the environmental laws that have increased the cost of land? How much excess due to speculation do you see, vs. the permanent increased cost of land zoned for building and the temporary increased cost of construction from high demand for contractors?
