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In a 2014 NAHB study of over 59% of builders reported a low supply of lots.  Particularly in “A” or prime markets or locations.  With the recession, many builders moved out of the fringe areas and markets.  Many first time buyers found down payments scarce.  For these buyers the fear of losing money on housing […]

In a 2014 NAHB study of over 59% of builders reported a low supply of lots.  Particularly in “A” or prime markets or locations.  With the recession, many builders moved out of the fringe areas and markets.  Many first time buyers found down payments scarce.  For these buyers the fear of losing money on housing turned these young buyers into apartments or back with their parents.  This buyer behavior caused lower entry-level builders to move into more prime markets and start building more upscale homes to stay in business.  This shift in the market absorbed much of the inventory of prime lots fairly quickly during the recession.

To further complicate the situation, the lack of credit available to developers slowed or stopped many developers or caused them to be scale back their projects into smaller phases.  This limited supply and also caused an upward shift in lot pricing for those markets.  While there were many good deals out in the market during the middle of the recession lot buyers became spoiled with the discounted lot pricing that hit the market.  Many of these existing lots were developed prior to the strict land development regulations enacted late in the housing boom such as on site storm water management practices, which have driven the cost of development way up. 

Bottom line, newly created lots are costing more, a lot more.  As with any cause and effect relationship, builders and buyers have two choices, pay more for an “A” lot or move to “B” lots sacrificing location, or dealing with site issues to obtain a lower price.  In the same NAHB study, nearly 18% of builders reported “B” lots as increasing in price as well, good evidence we know where new builds are going to next.  With many developers still wary of downturns in the market, don’t expect much large development to take place in the next year or two. Nobody wants to get caught holding too much developed land where annual property taxes can bleed you dry.  A wise man once said “Land is like ice cream, a little is good, too much will make you sick.

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Don’t expect the prime area lot shortage to go away in the near future. 

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