An improving housing market is creating a sharper increase in land prices and “creating big profits for land investors, but putting pressure on builders to further increase the price of new homes,” The Wall Street Journal reports.
Land values across the country increased 13 percent last year — the first gain since 2005, according to a report by Zelman & Associates. The increase has been mostly sparked by growing demand among builders for finished lots.
“There’s no question the land market has gotten heated of late,” says Richard Dugas, chief executive of PulteGroup Inc. “In some markets, it’s a real challenge to get land deals to pencil.”
The land shortage could equate to higher new-home prices for consumers. The cost of land is about 21.7 percent of the final sale price of a new home and usually, the land cost gets 100 percent passed down to the buyer, according to the National Association of Home Builders. Some analysts predict new-home prices will rise 10 percent to 15 percent this year, mostly due to the rising cost of land.
While land prices have risen lately, analysts note that they are still down from their peak reached in 2005 and 2006.
Source: “U.S. Land Gets More Expensive,” The Wall Street Journal (April 9, 2013)