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3 things that could slow homebuilding activity in the South

Homebuilders running out of options

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The South is rising in terms of housing activity, albeit slowly and steadily.

That’s the findings from the Federal Reserve Bank of Atlanta’s Southeast housing market poll. More than half of Southeast-based builder and brokers reported that sales increased modestly on a year-over-year basis.

Many builders indicated that buyer traffic had increased on a year-over year-basis. Reports from brokers were mixed.

The majority of the Southeast builder panel indicated that inventory levels had remained unchanged from year-earlier levels. Southeastern-based brokers told the Atlanta Fed that inventory levels had fallen from year-earlier levels.

1)    Finished lots harder to come by

Overwhelmingly and regardless of the market, builders reported that finished lots are extremely hard to come by in desirable locations. With few finished lots in the most desirable areas, many builders have moved to other locations for vertical construction.

2)    Lot prices growing fast

As a result of the increased demand for finished lots in good locations, contacts indicated that lot prices were appreciating rather quickly, and that this rate of price appreciation was problematic because the added cost on the front end does not align with the valuation that can be achieved on the back end.

3)    Developing raw land is getting cost prohibitive

A few builders reported that they were in the process of developing new lots in certain locations, but many more contacts noted that it was cost-prohibitive to develop raw land in any location at this time. The latter group reported that private acquisition and development money was available to fill the void that banks have left but noted that it was more expensive and would significantly raise the cost of development to the point where it becomes no longer viable. No one on the builder panel seemed to think that it would be viable to develop raw land in other locations at this point.

Over the next three months, most builders and brokers expect home sales to increase. Although expectations remain fairly positive, contacts were slightly less optimistic about sales growth relative to their year-earlier responses.

Nearly two-thirds of builder contacts expect construction activity to increase over the next three months. With that said, builders’ outlooks appear to be slightly less optimistic relative to their year-earlier responses.

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