The cost of building
I’m a sound money nerd. For some reason I’ve always been drawn to Gold and now, also Bitcoin. I believe most of societal issues today are as a result of currency debasement. Ray Dalio has a great quote that reminds me I’m not crazy, something he does for me often. “If you don’t own Gold, you know neither history nor economics.”
Having endured the Covid Era while building over 9 custom homes at the same time, I saw first hand the effects of inflation on our industry and lives. Our customers endured countless price increases from Vendors and Subs alike. You couldn’t find a foundation contractor that wasn’t 6 - 12 months out. In fact we had to cash bribe one foundation contractor to show up. Lumber scarcity and volatility was very difficult to manage. At one point Home Depot was the least expensive place to get lumber, as our normal suppliers had bought too much lumber at a high priced future contract. We had to reengineer homes to use only dimensional lumber, due to engineered lumber shortages. It was absolutely a crazy time. I experienced first hand, too much newly created money, chasing too few goods and services, which changed my understanding of monetary policy and inflation.
As we price out our own home I’m realizing that construction costs are still high, while the real-estate market is in decline. As I pencil everything out, building almost guarantees that we’ll have negative equity in the near term. We could buy a really nice place with more land for under what I could build for right now. Keep in mind this is for our own home, with no profit in the budget and a very economical design. Ultimately we have to decide if we want our home bad enough to be upside down in the near term. I think the answer for us is yes. A Sovereign Home is very important to us, and we can’t find a suitable home to meet our needs.
Recently I’ve noticed a market shift in our subcontractor base. Subs are dropping prices and are responding quickly. They are also more willing to do things a year ago they simply didn’t have the time for. I believe the Bull Whip Effect, as in demand destruction, is here. How long this will last I don’t know, my hunch is the Fed and/or Treasury will have to soon backstop the entire US Financial System, with massive currency debasement and/or revaluation. Which could very well cause Hyperinflation.
Ultimately the question on if you should build or not is very personal. Why are you building becomes a very important question. If the “why” outweighs the near term negative equity and price volatility. Then go for it. That’s what we are doing! You simply can’t find Soveriegn Homes in todays market, you have to build a Sovereign Home.
“Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output”
The one year lumber chart looks like it’s trending up.
Five year lumber chart. Look at the covid era volatility! What happens next?
Teton Canyon, Expansion of Sovereign Homes.