Custom Home Building Costs: Navigating Price Expectations

30-year mortgages have been around the 7% range since mid-February and recently dropped into the low 6% in September.

Two reasons for the high rates are inflation and the Federal Reserve’s attempts to fight it.

Inflation is when demand outstrips supply. As a result, prices increase.

The Federal Reserve has increased interest rates to decrease people’s borrowing funds.

As you might expect, these two things make buying a house too expensive for many people.

So, what does this have to do with custom home building costs in Arizona?

The idea is that building a home could cost less than purchasing one. After all, you don’t have to pay mortgage costs if you build a house — or do you?

Read on as we discuss building a new home and whether it’s better to build from scratch.

How Much Do Houses Cost?

Let’s discuss preexisting home prices before we get into custom home building prices — the median price for a home is $420,600.

That’s over $2,000 lower than the previous quarter and around $8,000 cheaper than last year.

Granted, buying a house was never cheap.

However, there’s a huge disparity between what homes used to cost, and what you’ll pay now.

Here’s a little perspective: A house in the 1980s was $63,700.

If we jump to 2000, you’ll see that homes cost around $165,000.

Meanwhile, homes — while higher than ever — were still cheaper in 2020 at $329,000.

Specific figures for an Arizona home are at $429,787.

But “median price” doesn’t mean “consistent.”

$420,600 is the middle range of prices for homes throughout the U.S.

Some areas, like West Virginia, may cost about $165,000.

Houses in the District of Columbia average over $720,000.

You can browse the full breakdown of house prices here for yourself.

How Do Mortgage Payments Work?

Mortgages are loans given to would-be homebuyers wanting to purchase houses.

You don’t need a mortgage to buy a home. For example, some people opt for cash purchases.

However, many don’t have that kind of liquid capital and need to borrow funds to become homeowners.

Mortgages come in two parts: the principal and interest.

Your principal is the amount dedicated to repaying the loan balance.

Principal amounts start low but increase with each payment. Interest is the lender’s compensation for lending you money.

Think of mortgage payments as two charges combined and issued simultaneously.

Interest rates affect how much you pay.

Greater interest rates mean homeowners can expect to pay more per month.

Mortgage payments start with lower principal payments and higher interest, which reverses during later years of repayment.

Higher interest rates often limit how much you can borrow and lower interest increases loan amounts.

Remember when we said the Federal Reserve increased interest rates to put people off seeking mortgages?

High interest rates discourage people from seeking home loans and push people to inject money into the economy.

How Much Are Custom Home Building Costs?

Let’s shift gears and focus on the average cost to build a home in Arizona, which is can be as low as $300,000 and go up from there depending on the scope of the project, materials, excavation, and permits needed.

Here’s a more specific breakdown of costs: it costs approximately $200 per square foot as a base estimate.

A 2,500-square-foot home would be about $500,000.

A smaller 2,000-square-foot residence costs around $400,000.

Your costs will differ according to location, property type, materials, and labor costs.

There are also permit expenses, which can cost thousands of dollars alone.

Much of what determines costs is what kind of home you want.

An average run-of-the-mill house won’t cost much more (perhaps less) than buying a home.

A custom luxury home will be more expensive, naturally.

Let’s say you want ceramic tile flooring; you’ll pay between $1 to more than $20 per square foot depending on the type of tile you choose.

The cheaper tiles are plain white and the more expensive ones are custom-designed.

Professional installations can cost between $5 to $17 per square foot.

Materials are largely what make a home luxurious and expensive materials and finishes add up quickly.

This does not include any costs associated with furnishing the home (something to keep in mind).

How Do You Pay to Build a Home?

You have two options to pay to build a home. The first is cash.

However, most people don’t have access to that kind of money to spend solely on residential construction.

The second, likelier method, is a construction loan.

These are short-term loans to fund obtaining permits, purchasing land, and building a home.

Some construction loans change into home mortgages once the building period is complete.

These are construction-to-permanent loans which are paid over a 15 or 30-year term.

How Much Does a Home Remodel Cost?

Here’s a question — wouldn’t home remodeling be cheaper instead?

Renovating your home has to be less costly than building or buying a new house, right?

Well, it depends on what you want.

The average home renovation costs just over $48,000.

Renovation projects usually range from over $17,000 to $80,000 depending on the scope and the materials being used for the project.

Here’s a more concrete example: a low-end whole-house renovation may cost $50,000.

Higher-end home remodeling work can cost $100’s of thousands.

A home remodel can be a more affordable approach, but you’re still working within the confines of your original home.

There’s also the matter of a home being outdated or in poor condition.

It can require less time and effort to buy or build a new house in these circumstances.

Speak to a contractor about your options before you decide.

Is a New Arizona Home Worth It?

Custom home building costs aren’t cheap. Often, buying a new house will cost less.

However, constructing from the ground up is likely your best choice if you want a fully customized luxury home.

McDowell Mountain Builders supports families across the Phoenix Valley with custom home building and home remodeling projects providing a 5-star experience every step of the way.

We work diligently and with the highest standards and materials to ensure all projects are in-line with our clients’ vision and budget.

You can trust that we’re the right builder to handle your home renovation, addition, or new home construction.

Contact us when you’re ready to get started on your new home.

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