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November 22, 2014

New-Home Lot Prices Start to Flatten

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New-Home Lot Prices Start to Flatten

Home builders no longer are as willing to pay high prices for lots, as new-home sales start to slow. 

“Since the housing market began recovering in 2011, investors have been bidding up the price of finished lots, which are home pads outfitted with infrastructure such as utilities and sewer pipes and thus ready for construction,” The Wall Street Journal reports. “But with new-home sales and prices cooling, some builders are renegotiating land buys to get lower prices or even walking away from deals.”

Lot prices increased nearly 7 percent nationwide in the first quarter of this year over the previous quarter. In the third quarter, however, that increase cooled with lot prices rising 4 percent, according to Zelman & Associates, a housing research and advisory firm. 

Land usually accounts for up to 40 percent of the cost to build a home, The Wall Street Journal reports. 

"Demand and prices had been increasing at unsustainable rates," says Larry Seay, chief financial officer of Meritage Homes Corp. "It is good for the industry to take a little breather, let the land market moderate, and get to a more normal rate of growth and house-price appreciation."

Lot prices have fluctuated a great deal the last few years. Prices for finished lots were about 55 to 60 percent lower in early 2009 compared to a peak reached in 2006, Zelman & Associates reports. Lot prices began to rebound in 2011. During the first half of this year, lot prices posted the largest gain, as demand for new-homes rose and a shortage of lots existed in many markets. 

Source: “Land Prices Hit the Brakes,” The Wall Street Journal (Oct. 29, 2013)

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