Since the 2011 trough in land prices, the worst markets in the Bay Area have seen a significant increase in lot prices – an average of about 44%. As the available land in the core markets has dwindled, builders have turned to the tertiary markets that were once off the radar. This trend will likely continue in areas such as the Central Valley and Monterey and Sonoma Counties. Although they may be considered unbuildable zones today, they will see a similar lot appreciation over the next few years as builders move farther out of the core to build.
It wasn’t that long ago when it seemed like the residential land market would never leave the cellar. Amazingly, it seems that someone flicked a switch and land prices are surging to what seem like pricing we saw at the height of the market in 2005.
We are not there yet, but getting close. How can this be when it seems like new home pricing and the re-sale market are still a good 30-40% below peak pricing? With the sub-contractor trades still aggressively competing for work and construction materials that remain readily available at fair market pricing, the cost savings from the builders fall directly to the land.
I think it won’t be long before we see the associated trade and construction costs begin to rise and we see a plateau in land pricing. Land owners need to catch the wave and enjoy the ride.
Source: Ryan Long, Senior Marketing Consultant, (916) 784-3329 ext. 16