Are Finished Lot Transactions on the Horizon?

It appears as though finished lots are again in heavy demand in some Western housing markets. According to a Builderonline.com article (which can be read here), finished lots are selling for between 35 and 40 percent of their pre-2007 prices in places like Phoenix, Las Vegas and the Inland Empire. The buyers are typically national or large regional builders, which makes sense since they are the only builders with easy access to capital.

Of course, this begs the question, if lots are being snapped up in these markets, how long before we see significant lot transactions taking place in the Chicago region? By our estimate, there are nearly 65,000 finished lots in the 7--County metro area (excluding the City of Chicago). Our guess is that we will see some transactions occur before the end of this year, but we will not see buyers flock back into the land market until mid-2010. Of course, most available lots are either owned or controlled by banks and the banks have been very hesitant to sell lots at a tremendous discount. Another issue that builders will have to consider when acquiring finished lots are the building permit and impact fees in the community where the lots are located. Many municipalities are contemplating offering builders "incentive programs" of reduced fees, while many communities will do nothing to assist the development and homebuilding industries, stating that "development must pay its own way."

The bottom line is that lots will begin moving again in the near term, but an assist from the banks and municipalities will determine where the transactions take place.