By most measure, the economy is in better shape today than it’s been at any time in the past decade.
The nations GDP growth has increased from ‘anemic’ to ‘moderate’; employment is up; unemployment is down, incomes are growing (although slower than most of us would hope), and the Federal Reserve is once again concerned with potential inflation after several years of being concerned with deflation.
As the national economy has improved, so has the residential housing market. Since 2012 home sales have risen, inventories have tightened, and as a result price indexes have risen steadily. Locally the residential market is also strong. March 2018 data for Frederick County reveals strong sales levels, a substantial drop in the ‘number of days on market’, and most notably the median sales price of homes has surged 14% from the prior year.
So how is the strengthening economy and strong residential market affecting the market for lots?
Not surprisingly the number of land transactions has increased. Using data from Bright MLS (the local multiple listing service) 2017 was a great year for sales. The total number of land sales reportedly increased 42% from the prior year; and was 152% higher than in 2011, the low point in the land market. It should be noted that this statistic includes ALL types of land property – everything from land-locked mountain ground to high value commercially zoned land.
In order to obtain a better (but not perfect) indication of how prices are behaving, it’s important to narrow the criteria to control for quality. I like to track what I call “custom home lots” – the completely subjective criteria I use narrows the market to only include sales of land that are between 1 and 2 acres in size and that are “ready to build”. In this subset of the land market, market activity in 2017 was also very strong: total sales were up 80% from the previous year and were 450% greater than in 2011. But here’s the shocker: between 2011 and 2017 the median sales price for custom home lots has only increased 9%. While the median sales price did jump substantially between 2016 and 2017, the median price in 2016 was significantly lower than the average over the past few years and appeared to be an aberration.
In my humble opinion, the inventory of custom home lots is still in a “burn off” mode. While the land market feels hot to me (I’ve sold more lots and land in the past 6 months than I did in the prior 6 years – prices remain relatively stable. If 2018 is another strong year in terms of the number of transactions, I wouldn’t be surprised if prices finally start increasing.
Dave Wilkinson, Vice President, joined MacRo as Director of Marketing in 1992, and has served as Vice President since 1997. Dave holds a B.S. and M.A. in Economics from the University of Delaware. Dave is a licensed Realtor and brokers most of MacRo’s land and farm deals.