12/01/2017
Land Market Update
2017 and Forward
~ Greg Vogel CEO, Land Advisors Organization
"The land market in our region has experienced several super cycles. The boom & bust of 1985-1987 ended horrifically with the S&L crisis AKA RTC days. It took until 1995 to begin a new phase that lifted our land economy steadily until the grand finale of 2004-2006 and it all ended as the housing market crashed.
Many have labeled 2007-2017 as the lost decade in the Phoenix Metro area for land and housing markets.
During the past four years, there has been a great deal of healing in the region and we now have a solid platform to move forward. We have seen an overall land market increase from $1.1 billion to $ 2.3 billion the past 12 months.
In addition, the top line revenue of home sales by the region's home builders grew from $1.8 billion in 2009 to nearly $7 billion in the past 12 months. Home builders typically spend 30 percent of their top line revenue purchasing land and lots. Home builders spent just over $1 billion on land and lots during the same period. Figuring in the cost for developing raw land into finished lots, we estimate that home builders are approximately $500 million short of acquiring what is required to service their needs going forward.
Home builders tend to act in concert: everyone pressing the "buy" button all at once. The Phoenix Metro area has been under building single family homes by ten thousand units over the past several years. For the first six years of the past decade, under building was needed to allow the excess inventory to be absorbed. Now, just like the excess building of 2004-2007 over the past four years we have been under supplying the market causing a housing shortage.
Phoenix now faces only a 3 month supply of resale homes and a shortage of finished lots for new homes. Currently, the price per square foot for a new home versus a resale home is nearly the same. Looking forward we are not permitting enough new homes to meet the demand of our growing population. This is due in large part to a shortage in labor and rising material costs both of which cut into home builders and developers margins. Demand for new homes will continue to out pace supply due to a limited capacity to build.
The next decade is expected to be one of the best the region has ever experienced. Land sales for all types of uses and geographies are on the increase. Whether it is infill for higher density or 2,000 lots recently purchased on the Sun Valley Parkway in the far West Valley, land purchases are occurring to service demand and very few transactions for pure speculation."
~ AZ Journal of Real Estate & Business, December, 2017
Note: Land prices seem to have leveled off since the crash hit bottom over the past 4-5 years after a steady downward trend in value since 2008. Even in some of the most desireable areas the price point for raw, undeveloped land seems to be hovering around $50K per acre which is a far cry from the $120K+ per acre it was being acquired for over a decade ago on average. This market still has a way to go before seeing a full recovery, if ever, but 2018 seems promising for prices to start indicating an upward trend. ~ DJ Welsh
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Debra 'DJ' Welsh
CENTURY 21 Northwest Realty
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