I get a lot of people asking me what size of home they should build. The answer is too simple.
Whatever size the banks will lend you money enough to build.
If I was asked this question two years ago, the answer would have been much different. My answer would have been, "whatever amount you can finance comfortably after paying 20% down."
I have seen the price of homes inflated over the last four decades to the point where no average wage earner can truly afford an average home. This part of my web site explains what I mean:
http://www.make-my-own-house.com/improving-home-equity.html
To paraphrase that page, back in 1970, an average-sized home cost around $25,000. Minimum wage was $2.00 an hour.
Now, in 2009, that same home costs around $200,000. Minimum wage is only $5.15 an hour in most states.
Do you see the problem?
We're not over-spending, we're under-earning.
Most people have two jobs to maintain themselves. Most couples have dual incomes, but still struggle.
We all understand this stuff really well.
Ok, so the answer to how much home should people buy isn't what they want to hear. If you're hiring a contractor to do all the building, you should wait at least one more year to finance and build your home. If you're doing all the work yourself, you can build a fairly large home right away.
Contractors are still trying to recover from difficult times. Many of them haven't found different professions yet. This means that they are still trying to get the inflated wages that they've been enjoying for the last two decades. Many of them still have their sub-contractors on speed dial.
Give them another year to completely give up on any recovery ideas and you'll be able to get home labor for a reasonable price. This seems cold, but they are the ones who kept raising labor prices simply because they could. The banks had to get creative in their financing just to make loans. The price of building materials hasn't raised much at all over the last decade, so we know where to put the blame.
We won't see easy credit like we've seen probably in our lifetimes. This is actually a good thing because it forces us all to be responsible with our spending and how much we charge for labor.
We need to get back on the 20% down payment standard like before. If we're an average wage earner, we will probably be able to afford a home around 2,000 square feet with a good down payment.
There are many good deals to be had for existing homes, but banks are really tight-fisted right now.
