OP, I am personally in the same boat as you are - well ours is not a canal lot, so there is no actual boat involved (sorry for that awful joke).
We bought ourselves an acre of land in a different state than where we live (a bit hilly like I want after having lived in flat land all my life) back in October of last year; found a local builder, started drawing up plans for our "dream home" (within a reasonable budget). This will be a second home until it becomes our primary home in about a 2-3 year period (my company has a second HQ in Atlanta now). Dream home to us means every part of the home is built to OUR specifications and needs/wants rather than someone else's. We did begin from a set plan from the builder and then heavily modified it (made it bigger mostly, lol). My wife is in love with this concept - so I am in, even tho building a home (GA) far from where we live (PNW) is quite an adventure (ordeal?). But I am learning a lot.
We locked the rate at 4.875% (and can buy down rates of 0.5% drop for every 1 point paid) and contract is drawn. It is a fixed price contract. Before we signed the contract the builder had said they were considering an "inflation clause" (around Mar 2022) but we pushed back since we had been working with them exclusively for the past few months. They agreed to not include it, but we are likely the very last clients before the contract terms change. We are now working to close the loan and begin pre-construction discussions and ground breaking. There is some custom stuff in the home (window sizes, doors, etc.) but most everything is just dependent on lumber and concrete. They believe the home will be ready (if we begin in June) by Dec/Jan.
So how do I feel about this since we began in Oct last year? The market has corrected and entered bear market territory, inflation is at a 40yr high, rates are high. After some calculations, we decided to stick with our plans and here is our rationale:
1. We are looking to move from PNW to Atlanta for a more moderate all-round weather. We grew up in the tropics so the 80-90F weather during most of the year is actually fine by us. Have to deal with the pest tho... None of this is impacted by the market conditions - PNW is still dreary and grey and I find myself holed inside more as I get older.
1b. I like to be in a quiet neighborhood and PNW has turned into a bit more bustling with the migration of folks from other states into PNW in the last decade; its a bit too crowded for my taste. Purely personal preference. We also have some relatives/friends in the GA/NC/FL belt that we have been rekindling our relationships with.
2. Interest rate is high but with inflation even higher and likely to stay that way for some time, the leveraged loan (75% of cost) is a hedge against inflation. Someone else stated this above - I am in fact surprised this wasnt stated more in this thread. I am seriously considering buying down the rate to 4.375% with 1pt.
2b. I did start DCA selling some equity to raise down payment cash starting in Dec last year - which incidentally was the ATH market so I did cash out at the "right time". I did have to keep selling (hence DCA) thru March but the avg price I sold is still about 25% higher than where the market is right now. In a sense, most of the down payment is coming from the market profits from the pandemic period (no depletion below what my equities were worth pre-pandemic around feb 2020 - of course not accounting for the broad market downturn in the last month).
3. Atlanta is expected to grow as a tech capital in the next decade - so my calculation (hope lol) is that RE will not drop as much as national avg, and even if it did, it would bounce back soon.
4. Our other home in PNW is at a 2.125%/15yr loan rate so in effect, our "average mortgage interest rate" is somewhere in the 3% range. We plan to keep the PNW home as a rental once we move (we'll see) and there is sufficient equity in that home to entirely payoff the new build in the worst case.
5. There is definitely risk in the next couple of years as the home is being built and we are in effect paying two mortgages (interest only during construction and then two full P&I mortgages before the move is complete). We will scale back our savings starting in late 2022/early 2023 to keep cash flow high to allow for this. (yes, there is an opportunity cost/loss in terms of scaling back savings when the market is down but hey you cant win everything - my hope is mortgage interest deduction will reduce my taxes some).
6. Lastly, this is likely our hail mary RE move (from primary home perspective). So decided to stay the course.