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Today's building and development environment is one of the toughest in decades. That's why you need Market Strategy Advisors– authentic experience in running a business in a downturn, repositioning and creating new  products in an changing market, creating sales and marketing strategies that  get results, improving processes to minimize risk and maximize opportunities, and designing  data collection and research methodologies to get the answers needed.

July 2009

The results of a recent analysis to identify and quantify the number of finished lots in the Dairylands revealed a dwindling supply of finished detached lots. At first glance, the market appeared to have a back log of bank owned projects to work through. In fact, there were nearly the same amount of projects put on hold by builders or banks as there were actively selling projects (*projects with 30 lots or more remaining)

Depending on recovery forecasts, current finished lot supply among active, closed down and future projects translates into six months (peak) to three years of supply (today) with a realistic outlook of approximately 18 months to two years. While that may lead one to believe the market has a way to go to absorb new home inventory, further analysis shows that 40% of the lots in closed down or future projects are listed by brokers, already transacted or are not in distressed situations.

Consider this:

• Just in the month of June, three projects were listed by various brokers in the Dariylands, with two additional listings nearby in South Corona and West Riverside.
• One of the best located projects received bids from approximately 30 builders and investors, 11 of which were public builders.

Why are builders ready to buy lots in the Dairylands despite unstable home prices and rising foreclosures?

• Homebuilders realize that what few projects they were selling through are nearing sold-out, if not this year then most by mid 2010. Many new homebuilders are running out of homes to sell and lots to build on.
• In addition, the Dairylands represents a close in location to multiple employment nodes at an incredibly affordable price point, making it an attractive builder location for a recovering market.

“At some point, there could be a gap in the market because existing and stalled projects will be gone and the new future projects won’t be ready”, according to Lorry Lynn Managing Principal of Market Strategy Advisors. There are two builder strategies that need formulating –

• Address the immediate shortfall of developable lots; and,
• Address what opportunities will be needed for a three year plus time frame when the current supply of finished lots are depleted.

If these strategies are not developed soon, builders will experience increasing price pressures on land purchases. By the time economists recognize the bottom of the cycle (with employment or permits, for example), many markets will have already depleted the bulk of their finished land supply and the best land prices of the decade will be gone. In fact, it may be too late to buy finished lots at “decade low land prices” in the Dairylands if 30 bids on one parcel is any indication.

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