Build a New Home or Buy Existing Part #1

New home construction has been down nationally each year starting about 2006. Certainly the Minneapolis / St. Paul (Twin Cities) marketplace has been decimated. At the peak the building community was building more than 20,000 houses per year. Last year that number was something like 2,500.

I have seen many quality builders get wiped out and have totally left the building business. Some have moved to the remodeling business, others are now carpenters and handy men.

Since the peak, prices have fallen dramatically on lots and in most cases are down 50% or more. Some lots can be purchased for less than it cost in city fees/assessments and the basic infrastructure costs. What this means it that once these lots are gone; prices will have to go up. Trouble is there are seemingly thousands of inactive lots sitting out there, but that is because building is down 90%. If building starts start to show any signs of life, desirable lots will get absorbed very quickly. On the other hand, there are many thousands of lots in outlying areas and less desirable areas that could take many years to absorb.

Land of course is a very localized supply and demand issue. It is not only a community by community issue; it is a subdivision by subdivision issue. For example, people wanting to live in Woodbury will not live in Oakdale or Lake Elmo or Maplewood. People who want to live in White Bear Lake will not live in Hugo, Mahtomedi, Lino Lakes, etc. Further, people wanting to live in Woodbury are going to zero in on one or two of the nicest subdivisions. Problem is, you are not the only thinking you want to live in the best subdivision for the cheapest price.

If you want to live in Jordan, New Prague, Watertown or Monticello or Otsego or Wyoming, Stacy etc. those lots may sit for many years depending on the pricing and amenities of the neighborhood. The higher priced lots with the least amenities will sit the longest and vice versa.

No matter where you want to live, the best inventory gets purchased first and the worst inventory gets absorbed at the end of the cycle. The longer you wait the less there is to choose from.

To build a subdivision from a land developer perspective takes 1-2 years (minimum) to get through the approvals and then actually build the infrastructure. I believe it will be many years before investors and banks will forget the pain and losses of the 2007 real estate depression. With that being said, we could actually wake up in the not too distant future with a shortage of desirable lots in desirable locations