I work in land development. A few observations:
1. Inventory of brand new houses is low. The few builders left are doing ok, since there are still buyers looking for brand new, and there is very limited supply.
2. Rentals are full...at least anything decent. Builders are salivating to build small footprints and duplexes, where the mortgage payment is on par with rent.
3. Credit is getting loser (not necessarily a good thing overall), due to federal policies that de facto underwrite most home loans now.
4. Material costs are up. Lumber 15% over last year, sheetrock 30%, shingles 10%. It is hard to build new, without it costing more than existing houses...margins are very tight. And the cost of utilities has gone up 40% for gas and power.
5. Land development is very difficult. Banks are very reluctant to lend on development property...or even put up surety for a project anymore. They’ve been burned too bad.
6. The cities and counties are about to get burned. Banks with a large inventory of foreclosed lots (with no houses on them) do not see a light at the end of the tunnel...and the special assessment taxes are too high to keep holding the property. Once they start going delinquent, cities and counties will be very reluctant to do special benefit districts for development.
The last two developments I’ve done are 15 lots and 16 lots....very small. Every detail that used to be routine, concerning the financing, was suddenly an act of congress. I lost money as an engineer and designer. My client broke even as a developer/builder.
I predict the housing market will be sporadic for the next 2 years. We will occassionally see a story that the slump is over...and then sales will be flat for a few months, etc. I definitely don’t think we’re out of the woods yet.
RE: I predict the housing market will be sporadic for the next 2 years. We will occassionally see a story that the slump is over...and then sales will be flat for a few months, etc. I definitely don’t think we’re out of the woods yet.
Which part of this great country do you live and work in?
In Maryland we have a state government that has done everything to kill new residential construction in rural and suburbs and force people back into the cities.
We adopted a new energy code that is adding $10 to $20,000 a house.
We have a “best available technology septic system” law that adds $15,000 to $50,000 a house.
We have land development restrictions that are driving up the cost of finished lots.
We have a land use zoning law change that the state pushed through that limits development of farms and is already pushing farms into foreclosure due to lower land valuations.
So when you hear about housing prices going up, don’t think that it’s because a builder or developer is making extra profits - a lot of it is because of extra costs from state regulations.