Lots: Record-High Prices, Record-Low Sizes

Home of the Week: MetroTowns of ParksidePrices have never been higher, and sizes have never been smaller.

Recent NAHB analysis of Census Bureau data revealed the median lot value in 2016 was $45,000, matching the record high set the year prior. The previous high mark was $43,000 set in 2006.

Another record setter was the median lot size of homes sold in 2016, which dropped to an all-time low of 8,562 square feet (less than one-fifth of an acre).

A variety of factors come into play such as local zoning regulations, land availability and housing demand. But regardless of their location, most builders are feeling the pinch.

“Land prices are just getting asinine,” said a production builder in Utah, who asked to remain anonymous. “There’s a bubble out there, and it’s not in homes — the bubble is in land because that’s where people are getting ridiculous.”

The builder admits that even though his margins are “not even close to where they were back in ’04 and ’05,” business is still very good. As one of the top builders in his market, he’s building more than 500 homes annually despite the current cost and availability constraints for lots.

“There’s massive demand right now, but very little of it is for the large, expensive homes,” the builder said. “It’s mostly for the more affordable stuff because we’re seeing a lot of interest from younger buyers. But keeping prices low is becoming extremely difficult to do.”

For this builder — and for many like him across the country — finding municipalities that will allow higher-density developments is one of the biggest hurdles to building affordable housing and generating stronger profits.

However, that entry-level segment of the market is often where demand is strongest.

“[Demand] just isn’t there for half-acre lots; it’s simply too expense to develop,” the builder said. “When I hear some of these prices, I [want to say], ‘Are you kidding me? You’re paying that per acre and at that density?’ It reminds me of ‘05 and ’06, to the point I’m backing out on deals because I just won’t pay that amount.”

“I don’t know how or when, but it’ll slow down eventually. And when it does, a lot of [builders] are going to get stuck.”

Go to eyeonhousing.org for more in-depth analysis of declining lot sizes and rising lot prices.

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