High Inventory and Lower Values Today, but a Scarcity of Rural Building Lots in the Future?
In our April 12, 2011 article on the MacRo Report Blog- Rural Residential Building Lots: 17% inventory turnover in 2010, but improving! we shared how the sales volumes of rural building lots in Frederick County, Maryland were on the rise.
Values climbed a mountain, but rolled back down
The median values of rural residential building lots in one to five acre range during that same period of time climbed steadily from a low of $78,000 in 2000 to a peak of $252,500 in 2006; and then fell to $155,000 by the end of last year.1
Between 2000 and 2006 median values increased at an average rate of 37% per year … a total of 224%. The interesting statistic is that median values in 2010 were almost exactly twice of year 2000’s figure ($155,000 up from $78,000) if one looks at the sum of the average increases over the entire eleven year period it equates to a 10% annual appreciate rate.
Very low lot sales volume.
Looking at the last 11 years, 2000 was the high watermark with 287 closings, and by 2008 only 50 units turned over. The good news is as of the end of 2010 the volume increased to 78 lots closings.
How Did Building Lot Sales Volumes Fall So Low?
Experience shows that vacant rural building lots are typically one of the last types of residential real estate to show signs of recovery after a market downturn. More often than not, a building lot purchase is not made by first time homebuyers. Rather, a building lot purchase is more of a “move up” decision where equity will come from savings and/or the equity in their existing home to make the purchase … and we all know how the tables were turned on both of these categories over the last four years.
On top of that, the next move after, or in conjunction with, a building lot purchase is typically to pursue a combined acquisition and new home construction loan… and again we all know that the mortgage lending market was turned on its head a few years ago.
In addition, specifically here within Frederick County, Maryland, the processes associated with the ability to subdivide rural and agricultural land has become more and more difficult since the early 2000’s. So even though there may appear to be excess unsold inventory out there, several of the available properties have been on the market for many years. Aside from the economic factor, many remain unsold for being overpriced, poorly configured or in an unappealing location.
A Message from Annapolis
Under the guise of saving the Chesapeake Bay just two months ago Maryland Governor O’Malley proposed legislation that would severely limit the ability for rural building lots to be created anywhere in the state. While this effort may be delayed or compromised significantly, the trend does not bode well for the future of rural lots in the “Free State.”
What is the Future for Building Lots in Frederick County?
With all the negative news, the future is looking brighter. There is no question that confidence is returning to the real estate market in the Washington/Baltimore Metropolitan regions. Business and job confidence is strengthening, and lenders are more willing to consider land and home construction loans.
If the interest level that MacRo, Ltd. is experiencing on the Ijamsville, Maryland 21 estate lot community at the Manor at Holly Hills is any indication, then 2011 could actually yield stronger sales volume than the last two years.
… and as the existing supply of lots burns down, the tight development restrictions of the early 2000″s has slowed the rate of new inventory entering the building lot market, which means values will rise.
From our perspective there are two segments of real estate market in Frederick County that will likely see the strongest gains in appreciation as the recovery strengthens — and both are due to the eventual extreme lack of supply: General Industrial Land and Rural Residential Building Lots.
1All data was pulled from the Metropolitan Regional Information Systems (MRIS) an online listing service available to member of the Frederick County Association of Realtors.
The author: Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He also writes for TheTentacle.com.