Construction costs are currently skyrocketing

Building a house has always been a very high concentration risk. But the situation has completely escalated in the last 9-12 months and has turned into a high-risk bond. And this with THE biggest investment for 95% of ordinary people in their lives. I am always a turbo optimist too, but people: be careful and do not downplay the risks that currently represent a serious threat. A house should still be payable with one salary!!!

I have granted a 100% financing (105% loan-to-value ratio) with a 30-year fixed interest rate at 3.92% today. The 10-year fixed interest rates are at 2.35% for an 80% loan-to-value ratio. From now on, home financing with the current interest rates and real estate/construction prices will no longer be feasible for some.

Why would anyone finance on such terms for 30 years ... in times of higher interest rates, no one would have ever come up with that, maybe still through building society savings but not like this. The urge for security in uncertain times is simply very, very expensive.


According to your explanations, this would mean the end of construction by general contractor, because it loses its advantages.
Those who are willing to bear the risks for trade costs and completion date themselves have always done better with an architect/single trades (done it myself).

Interest rates will rise. Even the current interest rates are still historically low. The market has been practically flooded with money in recent years. This was (and is) a reason for the still immense demand for residential property. Debt costs too little money.
The now relatively high inflation will also lead to higher interest rates: fewer people will be able to afford residential property – so demand will decrease. Theoretically. However, there are dozens of other factors: supply, price development in the construction sector, population development, key interest rate development, alternative investments (respectively the returns on these investments), etc., etc.
It will certainly not become easier...

I do not believe that the demand for real estate will decrease. The demand for existing properties and new builds will shift to somewhat smaller areas. Properties of 150 sqm and larger will no longer be built or bought, but rather smaller ones to compensate for the increased and rising interest rates and construction costs. Large properties will relatively decrease in price compared to now, smaller houses/apartments will rather still increase as the demand for smaller sizes will rise. Simply put, a loan repayment of €2000 will be spent on 100-130 sqm instead of 150-200 sqm as previously with low interest rates and moderate construction costs.
Owners of "smaller" houses/apartments can relax comfortably. However, those who have built large and expensive properties in the last 1-2 years could indeed experience falling market values.

According to your statements, the construction by general contractor would be over in the end, because it loses its advantages. Those who are willing to bear the risks for trade costs and completion time themselves have always done better with an architect/special trades (I did it myself).

But one should have better experience with project management. I would never recommend individual contracting and working with architects to anyone who cooks with a Thermomix and books package tours. I have not been doing project management in the real estate/construction sector since yesterday, but despite the team and a lot of experience, I notice that especially the coordination and planning of interfaces between the trades contains a lot of potential for errors. Most of our construction stoppages and the few processes we had to fight out revolved around the questions of who should have planned and noticed it and who messed it up.

Why finance under such conditions for 30 years ... in times of higher interest rates no one would have come up with that, maybe still through a building savings contract but definitely not like this. The urge for security in uncertain times is simply very, very expensive.

According to your explanations, the construction by general contractor would be at an end because it loses its advantages.
Those who are willing to bear the risks for trade costs and completion date themselves have always done better with an architect/single trades (done it myself).

Because interest rates are rather going to rise and because the nominal interest rate is still below inflation. The 10-year fixed interest rate is also at 2.84% with 105% loan-to-value.