Just on my drive to work I now pass four new communities being developed. The article I just read (copied below) is right on point – showing production of lots is up 140% in the past two years.
However, current lot production still isn’t keeping up with current housing starts in most areas. Especially Florida – “Florida development is woefully far behind demand for lots, hence the skyrocketing cost of finished lots there.”
My friend, who works for a truss manufacturer, and I were just talking about this last week at lunch. While his production is dependent on how good their product is, and how it is priced, and their service – his production is much MORE dependent on the overall number of housing starts in the local market.
I said I was bullish long term – local starts are probably only 67% of what they “should” be. However, I don’t expect more “big” jumps in starts in the short-term. (Unlike the last two years – where permits were up 35% and 40%.) Although I see the development now going on, I still think the new home market growth will be constrained by the number of new communities opening. And my Sales Manager friend always said – to sell more lemonade, you need more lemonade stands.
Lots of Catch Up: The Top 10 States for Lot Production
We have been talking for years about the lot shortages that builders are facing. Now, it’s time to talk about how many lots are being developed. Builders and developers are now playing “catch-up,” with builders buying land and lots and developers/investors paving roads and putting in infrastructure to serve the builders’ needs at a frenetic pace.
The pace of lot delivery (completion, ready for the builder) has gone up 140% in the past two years, much faster than the pace of housing production has rise (+84%). Nationwide, lot development STILL lags the pace of home production, and is still trying to catch up.
In some markets, the lot production machine is in full gear, and has caught up with demand. This is a good sign for builders, and a vital turning point for home production in 2015 and beyond.
The Top Ten States for Second-Quarter Lot Production
State 2Q14 Starts 2Q14 Lot Deliveries
1. Texas 19,714 18,931
2. Florida 12,416 10,974
3. California 10,050 10,219
4. N. Carolina 4,866 3,168
5. Georgia 4,489 1,270
6. Colorado 3,985 3,276
7. Arizona 3,519 4,596
8. Maryland 2,436 2,122
9. Utah 2,328 2,498
10. Virginia 2,198 1,850
Note that California lot production has caught up with its new home production. Same with Arizona and Utah. Florida development is woefully far behind demand for lots, hence the skyrocketing cost of finished lots there.