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Construction Costs Breakdown

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What goes into the cost of construction a home?

According to the 2020 Cost of Constructing a Home by the National Association of Home Builders, interior finishes, at 25.4 percent, accounts for the largest share of construction costs.

Their findings also show that, on average, 61.1 percent of the sales price goes to construction costs and 18.5 percent to finished lot costs. On average, builder profit is only 9.1 percent of the sales price.

With the average lot size at 22,094 and home size on that lot of 2,594 square feet, here are some break downs of construction costs:

  • Site Work (permit, Architecture, Engineering, etc) fees 6.2%
  • Foundations 11.8%
  • Framing 17.4%
  • Exterior Finishes 14.1%
  • Major Systems (HVAC, Plumbing, Electrical, etc) 14.7%
  • Interior Finishes (Drywall, cabinets, appliances, flooring, etc) 25.4%
  • Final Steps (landscaping, driveway, etc) 6.8%
  • Other/Misc 3.8%

What Happened to Rates Last Week?

Mortgage backed securities (FNMA 2.500 MBS) gained just +10 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to remain at the same levels as the prior week.

Domestic Flavor:

Manufacturing: The national ISM Manufacturing Index for April was better than expected with a 41.5 vs 36.9 reading. However, this is one of the worst levels in many years and shows severe contraction in the manufacturing sector. Prices Paid were 35.3 vs est of 35.0 and the Employment Index dropped from 43.8 down to only 27.5. The bell-weather Chicago PMI April reading was dismal at 35.4 vs est of 38, the worst level since 2009.

Construction Spending: The March reading surprised to the upside with a +0.9% reading vs est of a drop of -3.5%. However, much of the March gain was due to a big revision lower to February’s reading.

Income vs Spending: Personal Incomes dropped -2.0% vs est of -1.5%, it was the biggest drop in MOM income since March 2013. Personal Spending fell into a bottomless pit, dropping by -7.5%.

GDP: The Preliminary 1st QTR GDP showed a contraction of -4.8% which is the worst since the financial crisis. The markets were expecting a range of -4.0% to -5.0%. Prices Paid (a measure of inflation) was actually higher than expected 1.4% vs est of 1.2%.

Central Bank Palooza: The European Central Bank kept their key interest rate at 0.0%, ECB Chief Lagarde warns GDP to shrink by -12% in 2020.

The Talking Fed: The Federal Open Market Committee (FOMC) kept their key interest rate at 0.25%.Here are some key highlights of the statement and live comments by Fed Chair Powell:
 

  • Powell said that the Fed would continue to purchase MBS as “needed” and “appropriate”, not laying out a long term schedule or guaranty of min purchases.
  • The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy
  • Powell said “The debt is growing faster than the economy. This is not the time to act upon those concerns”
  • The Fed pledged accommodative policy until the economy again reaches full employment and 2% inflation.

 

What to Watch Out For This Week:

 

The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.

It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets.  Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.
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