During our last real estate down cycle from 2007 to 2012, builders cut way back on new home construction and land purchases due to lack of demand. Most builders simply cannot afford to sit on raw land.
During that period, new household formation and immigration has created a huge pent-up demand for housing; however, builders have not been able to react quickly enough to meet the demand. They must first secure the land, get all of the permits, and then build. They have been busy buying during the last 12 months, and this has caused land prices to escalate by 10 to 15%.
I suspect that it will take a minimum of 24 months to catch up with the demand, and during that time, prices will inevitably go higher. Because of affordability constraints, partly due to rising interest rates, the prices developers charge will most likely be somewhat attenuated.
Lenders are relaxing loan standards. Recently Stated Income Loans have returned to the market; however, I don’t expect a return to the wild and wooly lending days of 2005 to 2006.
Have a wonderful week.
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