Now is Still the Time to Build Your Dream Log Home
Kevin J. Daum

This article was originally published in a 2007 edition of Log Homes Illustrated magazine.

With real estate values dropping, lenders tightening and slowdowns in construction, why would anyone in their right mind think this is a good time to take on building a log home?  Well before you sign me up for the strait jacket you might want to take a moment and assess what is actually happening in the custom home markets today.  Certainly if one is to believe the media panic these days, the sky is falling where real estate is concerned and we will all lose our houses to foreclosure next year. Most likely there is a bit of exaggeration in the cries of the dooms-day reporters but truly the market is slowing down and prices in many areas are dropping. But custom homes like log and timber-frame aren’t subject to the same volatility as big business manufacturing little boxes made of ticky-tacky for mass sale in suburbia.

Granted the statistics can seem scary.  According to the various media reports national delinquencies and foreclosures are in the millions and prices are slumping anywhere from 5 percent to 25 percent depending upon the geographic area.  Construction starts are down by more than 25 percent across the country. There is no question that a change is occurring in the real estate climate and values are being impacted.  It’s very likely that sales prices will continue to drop over the next year or two and it will probably take 2 to 4 years before we see all of the inventory clear and a return to solid appreciation in value. Still instead of lumping all the housing trends together to create a panic, there is more to be gained by examining the facts of this correction as it relates specifically to the custom home niche since log homes fit into this unique category.

Most of the foreclosures occurring today are happening at the lowest end of the market.  Builders who created large tracts of production homes have seen their aggressive sales tactics to under-qualified first time buyers backfire leaving whole developments half empty.  Luckily these projects are mostly affecting pockets of real estate without devastating all of the surrounding areas or the higher end of the market.  Most custom homes are in the upper range of value in areas that are generally more established with a mix of homeowners who are generally not first time homebuyers. The slow down in construction starts mostly reflects these large-scale builders who are now slowing down their production to fit the changing market while custom home permits are remaining relatively steady as they have for the last 20 years.

Custom home consumers in the past have continued to build steadily even through downturns such as in the late 80s/early 90s.  Several motivating factors tend to keep log homes and other custom projects going up while the rest of the market sits on the sidelines. 

First of all, most custom home consumers are in it for the long haul.  Log Homes especially are the homes of which dreams are made of and for many they consider their log home to be the last home they will have.  This motivation allows consumers to look at the project within the context of long-term appreciation in real estate, which has performed well over any 10-year period since the great depression regardless of interim slumps.  If you have been planning your project or several years and expect to move in and stay in the home long term, it’s unlikely you will want to derail your project from it’s current path as long as you can still afford to build.  In many cases the planning and permitting processes are more likely to dictate your timing for starting your build than temporary market conditions.

In down markets, custom home consumers have some financing advantages over ordinary homebuyers.  Despite the difficulties in the credit markets, the larger portfolio banks are currently the prime sources for financing while the rest of the lending institutions are struggling.  These same banks have always been the best resource for log home construction loans, particularly the One-Time-Close loan products that wrap in permanent financing with your construction loan.  This type of loan can protect your project in a downward market since it doesn’t need an appraisal to roll to the permanent loan eliminating financing concerns in a declining market.  A knowledgeable mortgage broker, experienced in construction financing can help you find the right bank product to bring your project to the finish line.

Additionally downward trending real estate markets are traditionally accompanied by lower interest rates.  The Federal Reserve has already dropped the rates recently to keep the economy moving.  These lower rates result in lower financing costs during construction and ultimately lower house payments for you in the long run.  Another benefit of the declining values is that it creates justification for a lower value assessment for your property when it’s complete.  This results in lower property taxes creating more monthly savings.

Many log home consumers ready to build are concerned that the value of their property is declining.  Granted the value upon completion may not be what it was projected to be in 2005 but compensations come elsewhere.  If you are just buying your lot now you can take advantage of the buyers market and get more land for your money.

If you already own your land, rest assured in the fact that the current value of your land is an insignificant factor in the total costs of your build especially where lenders are concerned.  Lenders will lend you against the total finished value regardless of land value and although that value has gone down, chances are your costs are starting to come down as well.

A slowdown in construction means that there is an abundance of labor and materials on the market today.  After a decade of strong demand pushing up the costs of materials and making labor expensive and scarce, inventories are piling up and many people in the construction industry are looking for work.  Cost of construction is already declining in many geographic regions.  You can take advantage of this cost reduction to keep your budget in line with the values of the area regardless of whether they are stable or declining.

Careful planning will help you keep your project on track and allow you to take advantage of the benefits of building in a declining market.  First you need to spend some time assessing the changes and how they are impacting values and costs in your particular region of the country.  You can rely on the expertise of several professionals to help you figure out what is truly happening in your neighborhood.  A good real estate agent can help you find new lots that are coming out on the market where would be spec builders are unloading their inventory.

If you already have your lot, you can ask an experienced mortgage broker to connect you with a good appraiser and together assess highest and best use for your property to get maximum value for minimal cost.  The broker can help you pre-plan your budget to fit the guidelines lenders are looking for.  If necessary the broker can help you restructure your cash position through refinancing so you can meet lending criteria and have a much needed safety net for your project.

Do your shopping carefully and thoroughly.  Talk to your log dealer about sources for building.  The more options you have the more likely you can find quality labor at lower prices.  Research materials on the Internet and out of the area and negotiate aggressively.  Always ask if there are any special deals to be had.  Material suppliers may be willing to sell for less in areas where construction is slow so savings can be had even with additional transportation costs.

Stay focused on the long-term benefits of the project.  Reading the media reports everyday can paint a much bleaker picture than exists in reality.  Focus on your desire for the home.  Unless your decision to build a log home was solely based on your desire to make a profit the changing market shouldn’t significantly impact your plans for building a log home that you can enjoy for decades.

All the same benefits exist today that were there during the boom a few years ago.  Rates are still low, long-term real estate values are stable and tax deduction still exists allowing the government to cover some of your payment cost.  Take your time, design a good plan and stick to it.  Many factors aside from the economy will impact your log home project.  Stay focused and work through each one over the next few years and by the time you have finished and moved in it’s entirely likely that the market will have already turned around for the better.

About the Author...
Kevin Daum is the Founder and CEO of Stratford Financial Services, a Real Estate finance and education company, founded in 1989. Stratford specializes in Purchase loans, Refinance loans and Custom Home Construction finance and has successfully financed thousands of clients. He is the author of "Building Your Own Home for Dummies" (Wiley), as well as "What the Banks Won’t Tell You." Mr. Daum was an Underwriter for Plaza Savings and Loan and Key Bank of New York. He is an INC 500 CEO and has been listed as one the 40 Most Influential People Under 40 in the San Francisco Bay Area. He is the Global Chair for the Edison Innovation Program with the Young Entrepreneurs' Organization (YEO) and is a founding Board member of the Bay Area Chapter of YEO.

Mr. Daum is a frequent contributor to numerous business publications on the subjects of Real Estate and Small Business leadership and speaks regularly on both subjects. He can be contacted at kevin@stratfordfinancial.com.