U.S. Land Gets More Expensive

A year ago, Nate Nathan, an Arizona land broker, struggled in vain to sell several hundred home sites in Vistancia, a new-home community about 15 miles from downtown Phoenix. He listed the lots for $54,000 apiece, but no buyers would offer more than $45,000.

All that changed over the past year. As Phoenix home prices picked up, builders suddenly started coming to Mr. Nathan and making ever-higher offers. This year, he has sold 850 lots, including 250 lots for $96,000 apiece in the past 45 days.
What is happening in Phoenix is happening in real-estate markets all over the U.S. The rebounding housing market has sparked a sharp rise in land prices, creating big profits for land investors but putting pressure on builders to further increase the price of new homes.

Land values across the U.S. rose on average 13% in 2012, the first annual gain since 2005, according to estimates in a March report by Zelman & Associates, a housing consultancy. The increase was fuelled primarily by growing demand among builders for finished lots, or ready-to-build home sites with roads, sewage lines, electrical-power hookups and other infrastructure in place.

“There’s no question the land market has gotten heated of late,” said Richard Dugas, chief executive of PulteGroup Inc., PHM +0.47% the nation’s second-largest home builder by volume, on the company’s most-recent earnings conference call. “In some markets it’s a real challenge to get land deals to pencil.”

Corelogic reported its home price index for February grew at the fastest pace since 2006. Nick Timiraos and Redfin CEO Glenn Kelman explain what it means to the industry and homebuyers.

For consumers, costlier land means more-expensive houses. Land cost constitutes 21.7% of the final sale price of a new home, according to the National Association of Home Builders. As land prices rise, builders tend to pass 100% of those costs on to consumers.

Buck Horne, a housing analyst with Raymond James & Associates, predicts that new-home prices will rise 10% to 15% in 2013, chiefly because of rising demand and because of the scarcity of land. “Buyers who can’t afford to pay up now are going to have to wait. Maybe they’ll have to rent for a while,” Mr Horne said. “They may miss out on the first stage of price appreciation.”

This is a significant shift from the economic downturn, when builders halted development and liquidated land for pennies on the dollar. From 2006 through 2011, residential land lost a cumulative 58% of its value, Zelman says.

To be sure, land prices nationally are still far from the peak levels reached in 2005 and 2006. They also are notoriously volatile. In 2009, for example, as the first-time home buyer tax credit stimulated demand for lower-priced new homes, land prices rose, but levelled off and fell slightly when the tax credit expired and demand cooled.

This time, the new-home market appears to be gaining traction. The Census Bureau reported that in February, builders were on pace to sell 411,000 homes this year, an annual increase of 12.3%, while the rate of new-home construction rose 27.7% in the past year. Finished-lot prices rose about 18% in the past year in Raleigh, N.C., a market that has seen several national builders open up shop recently, research firm Metrostudy reports.

In Houston, finished lots in “A” locations—in good school districts with easy commuter access to job centres—are selling for $1,000 per foot of frontage, according to Metrostudy. At the peak of the housing boom, Houston lots sold for $800 per front foot, said Brad Hunter, Metrostudy’s chief economist.

That is great news for private-equity firms and other land investors, including Paulson & Co., Angelo, Gordon & Co. and Starwood Capital Group, that crowded into the land market at its 2009 trough.

“This is exactly what we predicted would happen,” said Tom Shapiro, president of GTIS Partners, a New York-based private-equity firm that 3½ years ago started buying lots in suburban new-home communities at an average of about 20% of peak pricing. “The rate of recovery in some of these markets has just been incredible,” he said.

Since 2010, GTIS has amassed a portfolio of about 30,000 home sites and has started selling out of its land positions for large profits. In the past three months, the firm says it has almost sold out 400 lots in Carillon South Lake, a development near Dallas, where it bought land in 2010. “We doubled our equity,” said Rob Vahradian, a senior managing director with GTIS.

Meanwhile, with the inventory of finished lots dwindling, investors are beginning to bid up raw land, as well. A recent survey by Zelman showed that demand for raw land has grown in each of the past five fiscal quarters.

Justin Good, a land broker with the Raleigh office of Cassidy Turley, points to a parcel of raw land in North Raleigh that sold in April 2012 for $235,000 per acre. Now, builders are making offers more than 35% higher than that price on an adjacent piece of raw land. “That’s staggering,” Mr. Good said.

USA New Build property stimulates property growth for investors.

Since 2012 the amount of new homes being built in the USA is on the rise. This has a significant impact on investors, traditional home buyers and renters alike. The increase in new builds is a strong indicator that the property market is well on the way to recovery. After many years of slump there is good reason to believe that things are taking a turn for the better.

The favourable market conditions over the last couple of years have resulted in new builds being snapped up at record prices. Many of these homes are being bought by investors as opposed to the more traditional family units of years gone by. There are a number of reasons for this but one of the main ones is that due to the prolonged economic slump since the late 2000s many traditional homeowners are no longer able to buy due to bad credit or lack of the amount of savings needed to take out a mortgage.

This has resulted in a massive boom in the rental market instead as many families are looking for ever more affordable ways to find their ideal home. While homeownership may no longer be the norm for many families, the increase in the rental market has meant that people are now able to afford good quality housing in decent neighbourhoods.

The other advantage of the boom in investors taking on properties both new and old is that it has prevented many neighbourhoods from falling into disrepair. In the past the large numbers of vacant homes and empty lots had a knock on effect of lowering property prices throughout the rest of the neighbourhood. Now that investors are taking on these properties and renting to families who would otherwise have nowhere to live, the quality of these areas has significantly improved for all who live there.

While there is still a debate over whether it is better to build new homes or to invest in older, vacant properties there is plenty of money to be made for those who are savvy enough to invest while the market is still in the early stages of recovery. Gone are the days of investors buying property at knockdown prices in the hope of a quick sale at a large profit. Instead the financial rewards are slower to accumulate but they present a far greater return than on previous investment strategies.

The advantage of investing in new build, however, means that investors can achieve a far higher rental return on their initial investment. These new homes can be practically custom designed and many make the most of the latest in energy efficient and environmentally friendly technology. For those families who have found that homeownership is not longer an option, having the opportunity to rent a modern, high tech house is an attractive proposition that is worth them paying a premium price for.

The growth in the current housing market might be slow but there is a significant shift from home ownership to investors buying up large numbers of properties across a wider geographical area and renting them to families who have been affected by the change in the market. The investment potential here is almost limitless as the numbers of people seeking bankruptcy advice is on the rise.

Southwest Florida makes Top 10 for housing price increases

The Cape Coral-Fort Myers and Naples areas were both in the top 10 nationwide for home-price increases in the second quarter as Southwest Florida’s battered housing industry came back with a vengeance.

A National Association of Realtors survey showed that the Cape Coral-Fort Myers median existing single-family-home sale was up 36.1 % to $177,900 compared to a year earlier.
Naples was seventh with a 29.3 % increase to $346,600.
Nationwide, home prices continued to rise in the majority of metropolitan areas in the second quarter, with the national price showing the strongest gain in 7½ years, according to the survey.
“The Naples-Fort Myers market was one of the worst beaten-up markets in the downturn,” said Brad Hunter, chief economist for Metrostudy, a national housing data and consulting firm that maintains statistics on residential construction. “And it’s my view that what drove prices to extremely low levels then let them come up from the bottom faster.”
Brett Ellis, head of The Ellis Team with Re/Max Realty Group in Fort Myers, said prices in Lee County are still rising but not as fast as they did at the beginning of the year.
Still, he said, it’s a seller’s market as the inventory of homes for sale continues to decrease: 4,956 in June compared to 5,448 a year earlier.
“We’ve got buyers that are really looking to buy now because they’re afraid,” Ellis said. “They see the price increases, and they’re also afraid the interest rates are going up.”
He expects prices to continue rising throughout 2013 as those buyers get in the market. “It’s all encouraging, but there are not a lot of choices for buyers.”
Lawrence Yun, NAR chief economist, said tight inventory is continuing to drive home prices.
Those trends are in force throughout the country, Yun said in a release. “There continue to be more buyers than sellers, and that is placing pressure on home prices, with multiple bids common in some areas of the country.”
Hunter said rising prices likely will stimulate the purchase of homes as owners find themselves able to sell at a good price.
“The higher prices go, the more people are no longer underwater and can pay off their mortgages,” he said. “I do think you’ll see more sellers.”

Houston’s new home construction remains solid

Houston homebuilders started more than 7,000 homes in the second quarter — the first time that number has been surpassed in five years — but continue to feel pressure from the lack of lots going forward.

New home construction in the area kept up its momentum, with about 7,700 homes started in the second quarter, a 14 % increase from the same period last year, reports Houston-based research firm Metrostudy.

With Houston’s population and employment growth, it is not surprising the Bayou City’s new home construction market is so strong.

“We’ve been on a torrid pace of job growth over the last 12 months,” said Patrick Jankowski, vice president of research at the Greater Houston Partnership. “We’ve created more than 111,000 jobs, and that’s 111,000 potential homeowners.”
For the year, homebuilders have started 26,000 homes in Houston, up 24 % from this time last year, and the highest tally since before the recession.

At the end of the second quarter, there were about 9,800 homes under construction in the Houston area — a 19.2 % increase from the first quarter. In addition, the supply of homes sitting finished and vacant has declined by 6 % and remains at historic lows as builders see their speculative homes purchased before reaching completion, according to Metrostudy.

Closings have increased steadily over the past eight quarters, and in the second quarter, homebuilders closed about 6,200 new homes, bringing the annual total thus far to around 23,700 — a 17 % increase compared to 2012.

Master-planned communities hold about 30 % of the market share of Houston’s new home construction, David Jarvis, regional director of Metrostudy, told HBJ recently.
However, many of the communities are short on lot supply and nearly sold out. In April, lot supply — months left if the community maintains its current rate of new home starts ¬— dipped to 3.4 months, a 13-year low.

In addition, the plethora of new homes is buoying business for local residential real estate brokerages and mortgage lending for Houston banks.

Houston returns to top 5 on economic health index

Houston is back among the top five markets in the Business Journals’ latest analysis measuring the economic health of major metropolitan areas, after slipping down the list in recent months.

Houston took the No. 5 spot in the Business Journals’ On Numbers Economic Index for July, up from No. 6 a month earlier. Since the analysis began in August, Houston made the top five in every month except for September and June.
The index is calculated by an 18-part formula that assesses private-sector job growth, unemployment, earnings, housing-price appreciation, and construction and retail activity for all 102 metropolitan areas with populations of more than 500,000.
Houston had the second-strongest housing-price appreciation over five years of any of the metros, as well as the second-greatest private-sector job growth over the same period.
Meanwhile, Austin — which had topped the list for five months in a row — fell to No. 3, and Provo, Utah, jumped into the top spot. Dallas-Fort Worth climbed another place to No. 2, and Oklahoma City held its No. 4 spot.