The Housing Market Index fell two points in March and as the NAHB explained, the drop is largely attributed to supply chain issues, i.e. lot and labor shortages. Being in the business of delivering residential land to homebuilders, I can attest to lot shortages being a concern for some builders and will focus my commentary on that component of NAHB’s explanation. I can’t speak on a national level, but in Florida’s primary markets there is strong demand from builders for residential land in the short term leading to a concern on where lot supply will come from in the next one to five years.
Over the past several years homebuilders have been able to acquire lots at a low cost basis from banks and distressed sellers but now that these distressed opportunities have been depleted in the primary markets, lot prices are increasing due to a lack of low cost financing options for land development. Higher lot costs equate to higher home costs which have made new home purchases unaffordable for a segment of the potential new home buyers, thus stalling growth. The silver lining to this is builder demand is strong because buyer demand is strong as explained in the article. The population, employment and wage growth we have and continue to see throughout the primary markets in Florida will continue to strengthen the demand side of the equation. The most significant missing component on the supply side right now from my perspective is the lack of available financing for land development to keep lot costs at a level that allows builders to pass on these costs to a broader market share of potential new home buyers.
Read the NAHB article here: