One of the most negatively affected property categories during the past 3+ years is buildable land. In the early and mid part of this past decade, I used to say that if I had enough buildable small parcels in Yamhill County, I could sell one every day. Since the market began to deteriorate in summer of 2007, these parcels are almost unsalable.
What dynamics are hindering the sale of what normally is high demand real estate?
1. Excessive inventory is the most fundamental culprit. During the market surge in 2005-2007 builders, both national production builders and local builders, built fast and furiously. It seemed every sub-contractor now became a general contractor and home builder. Corporations poured amazing amounts of money into purchasing large tracts of land anywhere in the country they could find it, even if it meant moving farther and farther out of urban centers. By the time the housing Tsunami hit and did sudden damage, the amount of new construction in the city and in the country was astronomical. The result has been profound oversupply.
2. Lack of Lending: For years now lenders refuse to lend to build anything new. They viewed the oversupply as a systemic problem; this is not surprising since most of their great losses are on development land (think also M37 and M49), somewhat un-built subdivisions, and higher end homes which got caught in the vortex before they could sell. Builders almost universally have been through bankruptcy or suffered significantly damaged credit and cannot afford to build even now. Banks have tight controls on developers and builders and manage them with rigid ferocity. Only the few individuals who are well-qualified, and able to purchase the lots & parcels for cash, can get financing for new construction right now.
3. Why the drastic change in people? Why are people not deciding to buy land and build right now? It is because they can find so many bargains that are move-in ready! The inventory is large and the opportunities close-in to downtown Portland are plentiful. You can buy rural estates in the Stafford area of Tualatin, equestrian properties in rural Wilsonville, and luxury homes in the Parrett Mountain View Estates in Sherwood for half price (down by up to $1.5 million)! If you were going to make a purchase which offered the best return in the future would you choose farther out or closer in? So are they!
4. The industry is upside down: This past week I went to a Greater Oregon Appraiser Institute Association Meeting in Tualatin to learn more about new construction challenges and particularly the issues for appraisers getting the job done. Representatives from DR Horton, Legend Homes, and Renaissance Homes formed the panel with John DeCosta, an accomplished Realtor®. They painted a picture which is not pretty! Lots have been devalued by more than 50%, builders can only achieve modest margins if they buy really low and build with high efficiencies. Universally buyers are brutal and demanding and all of us are held hostage. But even worse, new homes, not yet occupied are now lower in price than their replacement value. A couple of these companies had the advantage of jettisoning their debt and re-negotiating their high priced lots. It does not seem fair to all but they have lived to build again. The rest of our clients- they get to take the losses personally.
5. Demand is almost non-existent: Buyers have too many better options now, yes. Finding a lender is challenging, yes. But there are more dynamics…
We have experienced a significant cultural change in style in the last decade. The flow from the city to the suburbs to the country which began in the 50’s has been reversed. We have moved-on past country styles and to illustrate that try to find an antique store- they are gone! Urban life is in high demand; just think about the development of the Pearl District in Portland. It boggles the mind what happened to this previously wasted industrial ghetto.
The Green industry is also affecting building and choices. Some are considering the costs of commute, the utilization of resources, high density rather than suburban spread, and enjoying higher quality but in smaller spaces. Sometimes this translates to influence issues like our location and the size of properties.
Uncertainty! The times are fearful and we are contracting our lifestyles, doing with less, driving less and cutting commute costs and expenses. Building in the country is something dreams are made of and right now not too many people are dreaming. Most people are becoming quite conservative and protective of their futures. Some believe this recession will thoroughly change the next generation’s expectations and lifestyles.
In our area we have populated rural properties mostly with buyers from the Sunbelt states; that is, the California markets, Phoenix, and Texas (mostly Austin). These people are locked up in their states and cannot sell their homes to save their lives! When things do break through, guess how much money they will be coming with… A safe guess will be less than 50% of what they had before.
It has been bad for those trying to sell lots and land and it still is the biggest challenge for us. Is there any good news? Here is my take on that: Land is a limited and desirable commodity; it will come back as the market improves. Land is more limited in Oregon because of our land use laws which are perhaps the most restrictive in the nation. Fads and movements change and are cyclical. I am optimistic that we will see the housing market turn the corner this year but the market return will likely be slow and competitive for many years to come. Since buyers will be few, pricing and presentation are of paramount importance. You will need to be the best value (not necessarily the lowest price) and your property must be presented in its best light with as many amenities (hooks) as possible. Think about clearing areas on the property, identifying building sites, installing a septic system or a well or fencing. Think about adding a driveway or improving it or the road near the property. Of course it needs to be mowed, and berry bushes and weeds need to be controlled for the best expectation.
Recently I wrote an article about predicting the future, which can be a futile exercise vs. practicing the fundamentals regardless of conditions. That article meant a lot to me and expressed our desires and commitments to you. While we cannot create buyers nor would we want to sell them something they do not want (even if we could), we can present your property well and publicize it widely. We can handle every inquiry with care and precise responses. We can persuade and negotiate with skill and passion to make an offer work and keep it alive during the difficulties of the transaction. We can help you achieve your goals. We can do that if we are faithful to the fundamentals of our trade and keep our client’s interest first. We built our business on these principles and we are determined to continue to practice that which made us successful. We think this can make a difference even during a time like this.
Stop by the blog tomorrow for the next installments of this series with hard core sales and pricing data based on Yamhill County Lots and Land.
Stay up to date on real estate market data and conditions for Yamhill County and the surrounding areas on our website – Visit Current Market Data for regular updates.
Randy McCreith, Principal Broker
Bella Casa Real Estate Group
Cell: 503-310-9147 Fax: 866-281-6653