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Home builders have been gobbling up sites in A and B markets in Southern California for the last 18 months, driving land prices back up above mid-2000s peak levels. Higher land prices are impacting profits and making deals tougher to pencil. What's a builder to do?
Consider low land-cost D and F locations.
While everyone has heard the real estate adage location, location, location, the truth of the matter is that the real indicators of potential new home project success are location, timing, and price. If you have all three - a good location, good timing, and the right price - you will hit a home run every time. Even if you have just two out of the three, chances are you will still do well.
But should they?
Every time I attend a conference I learn something. Last month, legendary Inland Empire investor Bruce Norris held a charity event for 500 people with a number of top analysts. He estimated that at least $1 billion of Southern California residential real estate investment capital was in the room. These investors are anxious about new home construction and, surprisingly, were the most interested in hearing me speak about the future supply of new homes.
The highlight for me was the time I got to spend at dinner with Debra Still, CEO of Pulte Mortgage and outgoing Chairwoman of the Mortgage Banker Association. I haven't met anyone who articulates the mortgage industry issues as well as she does.
Below are a few links to the event.
While the national story is slow and steady job growth, the local story is much different. The US is a mix of rapidly accelerating and decelerating economies. The larger markets, particularly in the South, are growing faster than the smaller markets, which is particularly good for new home construction. There are other, more local factors at play as well.
The following 2 charts show 8 rapidly accelerating and decelerating economies over the last year.