Why Buy Land Now?

Supply levels are sitting in an excellent space for buyers right now. But beware that the standing inventory levels are flattening as builders have pulled back sharply on construction starts. Therefore the supply of available homes may only be slightly greater than that of balanced markets. This means that sales and prices are very near the bottom and now is the time to get in while it is still affordable. The Census Bureau announced this month that housing starts dropped 6.3 percent in September. This is good news that the market is leveling and an indication that supply is trying to equal demand. But until that happens, prices will not necessarily reflect supply costs.

The figure below shows the relatively close relationship since 1968 between the number of housing completions and the increase in the number of households in the U.S. Over the 35 years before 2003, Americans built an average of 1.51 million units per year. Over that same period, the number of households increased by 1.43 million per year.

Over the last five years, however, we completed about 8.9 million units. The country’s housing stock increased by about 8.65 million units between 2002 and 2007. Over the same period, the number of households increased by 6.7 million. Some of that two-million-unit gap between homes built and households formed represents a historic increase in the number of vacation homes, but there has been a one-million-unit increase in the number of vacant homes on the market for sale between 2002 and 2008.

These figures suggest that we’ve got an extra 1.3 million vacant units sitting around. Not good if you are a homebuilder, but if you are a buyer looking to capitalize on this excess your timing could not be better.

If you are considering buying land now, research local developers who might be feeling the market’s pinch and would be tempted to dump new property at a discounted price. As property values continue to decline, although the pace has slowed, you may consider buying that second home as an investment and renting it while your family isn’t using it. Your best bet is property with adequate land to accommodate future expansion and in close proximity to recreational activities and a good school district.

There are certainly plenty of developers that did their homework in the acquisitions research phase that have identified these areas in local market as growth opportunities. Take advantage now of their knowledge and land improvements and the current market pricing discounts because they have figured out that the only out of this mess is to halt new construction starts and sellout their current inventories.