Southeastern Housing Update: A Closer Look at Lot Inventories
Southeastern housing contacts continued to report sales gains in August, even as home inventories remained below the year-earlier level. Reports from both builders and brokers indicated that home sales in August increased slightly compared with last year's levels, and buyer traffic remained strong (see the chart).
The majority of southeastern builders and brokers continued to report declining home inventories on a year-over-year basis (see the chart).
Builders continued to note increasing levels of new home construction in August. However, in recent months some have noted that finished lot supplies were tightening and could be problematic, so we queried our builder panel to get a better understanding of finished lot inventories (see the chart). Builder responses indicated that current finished lot inventories varied across the Southeast.
But it appears clear that finished lots will decline over the next six months (see the chart).
Based on comments from builders, finished lots will not be a constraining factor this spring, but shortages may materialize farther out, especially in the most desirable spots, known as "A" locations. Many contact indicated financing terms continue to be prohibitive for builders. Here is what some builders recently had to say:
- Atlanta—No "A" lots are available inside the Northern Perimeter. The only lots available are tear-downs. I am seeing houses that could be renovated, expanded, or torn down because, relatively, the risk-reward is better. No new lots are being developed that I have seen. The capital requirements are too extreme.
- North Georgia—Too many lots are in places that never should have been developed. Many will not sell to build on any time soon at any price. They need to be plowed up and make pasture for hay; this would be the only way to generate income off the land.
- Bessemer, Ala.—Most foreclosed lots in "A" locations have been gone for awhile. "B" locations are being taken now. "C" locations still exist and will need to move before any acquisition and development lending takes place for new projects.
- Birmingham, Ala.—There are lots to buy, but they have been picked over, and the ones left are less than desirable. New lots are not going to be developed due to banks not wanting to lend money, which in turn is heading down a road that will cause a lot shortage in a couple of years.
- Tuscaloosa, Ala.—Just finishing a small new subdivision, in a great location, and pricing the lots at a very reasonable price. However, trying to sell the lots is becoming more difficult than expected. Builders do not have access to borrow money to develop lot inventory, even on a small scale. I think most builders are afraid to get commitments for future purchases (due to no source for borrowing money).
- Jacksonville, Fla.—There are lots to buy but not many "A" lots left, mostly "C"/"D" or worse lots; some new lots being developed in pretty much only "A" locations. It is tough to develop lots because there is no debt financing available and equity is very expensive. Twenty percent–plus annual returns are required by equity investors.
- Tampa, Fla.—Almost no finished lots available in "A" or "B" locations. Plenty in "C" and "D" locations. We are developing lots in "A" locations.
- Brevard County, Fla.—The slight increase in activity in sales has influenced the consideration of developing new lots. If developed, new lots will have to sell for more than current inventory.
- Franklin, Tenn.—There are finished lots but they are spoken for in all of the "A" locations and most of the "B+" locations. There are not any new lots currently being developed of any significant numbers. The timing of delivering new lots takes almost a year. However, there are plenty of paper lots that will be developed by those that have acquired the finished lots mentioned above. It will be difficult to compete price wise. The biggest hurdle will be obtaining the acquisition and development financing from traditional banking sources.
- Nashville, Tenn.—The finished lot figures for the Nashville MSA [metropolitan statistical area] are skewed based on finished lots in "C" locations. The last four land deals that we have signed have been raw land deals in "A" locations.
- Knoxville, TN—From our perspective, we have finished lots available and significant interest in those areas to allow for homes to be built and sold. We would like to work through our current finished lots before pursuing new developments.
- New Orleans—There is a superabundance of developed lots. At the present absorption rate, no new lot development is expected for several years. Those lots that are changing hands are those sold by lenders at a fraction of what it cost to develop replacement lots.
Most builder and brokers continued to report modest annual home price gains in August (see the chart).
Overall, the outlook among Southeast builders and brokers remained positive. The majority of brokers and builders anticipate home sales over the next several months will be slightly ahead of the year-ago levels. Similarly, builders anticipate modest gains in construction activity.
Note: August poll results are based on responses from 64 residential brokers and 33 homebuilders and were collected September 4–12, 2012. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity while negative values indicate decreased activity.
By Whitney Mancuso, a senior analyst in the Atlanta Fed's research department
September 20, 2012 | Permalink
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