Md. has one of nation's tightest markets for vacant residential lots
High demand, low supply for undeveloped lots could cause new-home price increases in coming months, experts say
Rachel and Joshua Jennings pose outside their unfinished home, which is being built at The Pointe at ArundelPreserve. (Karl Merton Ferron, Baltimore Sun / September 5, 2012)
But as is happening throughout Maryland, finished home lots — barren plats that are ready for the erection of new homes — are becoming few and far between at the 268-acre planned community, which also contains a hotel, restaurants and offices.
Builders were eager to lock up lots in this locale, according to the Pointe's developer. New-home builders M/I Homes and K. Hovnanian Homes purchased the Pointe's lots in bulk last year in order to build 110 residential units that start in the mid-$300,000s.
"The proximity to 295 [the Baltimore-Washington Parkway], both beltways — it's centrally located," said Stephen Horne, a vice president at Elm Street Development, the McLean, Va., development firm that started the permitting process for the Pointe's lots back in 2008, in the middle of the housing market downturn.
Apparently, though, not enough developers had the foresight during the slump to continue acquiring land and preparing homesites in Maryland.
Right now, the state has the fifth-tightest market in the nation for finished vacant lots in terms of monthly supply — the number of months that the existing supply of finished lots will last with the current level of demand, according to Metrostudy, a housing research firm. The group has researchers drive through developments and collect information about finished lots, any homesite on a paved street where utilities are in place.
"Nationally, across the country, Maryland's got one of the tightest finished-lot markets around," said Kevin Setzer, a vice president with the Hogan Cos., a national land brokerage based in Annapolis.
In the second quarter of 2012, there were just over 14,000 finished lots available in suburban Maryland, a region that, for Metrostudy's purposes, encompasses most of the state except for the southern half of the Eastern Shore and Allegany and Garrett counties in Western Maryland.
At the rate that those lots are now being snapped up for new home construction, the research firm projects that Maryland's finished-lot supply will be eliminated within 30 months.
Of the markets that Metrostudy examines, only three metro areas in Texas — Houston, San Antonio and Austin — and San Diego have finished-lot supplies that will be depleted more quickly.
"In raw numbers, year over year, the physical number of lots has increased from 13,400 [in the second quarter of 2011] up to 14,200 — but we're using them up much more quickly," said C. Melissa Jonas, Metrostudy's director for Maryland and Virginia. "Builders are clamoring for lots."
Some experts say that the small finished-lot supply has already caused new home prices and the value of raw land to creep upward. Consumers may already be seeing the price hike in Maryland's real estate hot spots.
Rachel and Josh Jennings, who are expecting to move into a new M/I townhouse at the Pointe in the next few months, said they did not have difficulty finding new homes near Fort Meade — so long as they were willing to pay well over the amount they originally expected to spend.
When they started the homebuying process this summer after moving to Maryland from Florida, they were willing to spend as much as $275,000.
But the couple, both 29, had trouble finding a home, new or pre-owned, for that price. They looked at about a dozen new-home developments and as many existing homes during their two-week search, they said.
"Most of the ones within a decent price range weren't in appealing areas," said Josh Jennings, who is in the Air Force.
They contemplated buying a new house in Glen Burnie that was listed for about $340,000, but the couple decided its resale and rental potential was not as good as a new home at ArundelPreserve. In the end, they settled on a 2,300-square-foot end unit at the Pointe for close to $414,000.
"It was worth the extra money to get this close to the base," Josh Jennings said.
The couple may not be the only buyers having to extend their budget.
Market pressure is now beginning to push up prices on finished lots in the most desirable areas, Jonas said. Already, she said, 20 percent of the newly built homes in Maryland's subdivisions have seen price increases this year. The average price increase in the first six months of 2012 was about 2.5 percent to 3 percent, she said.
Homebuyers can "absolutely expect" new home prices to go up even more in the next six to 12 months because of the low supply of finished lots, Jonas said.
"Now that the market's starting to come back, people are coming to the realization that we didn't grow any more land, we didn't zone any more property," said John Kortecamp, executive vice president of the Home Builders Association of Maryland.
Because of a failure to plan for the market to bounce back, there is now a "very significant shortage of new land for new housing," said Kortecamp, who agrees that the scarcity is causing new home prices to tick up in areas with good schools and plenty of community amenities.
"There's a recognition that if you do have finished lots in a good location, they're hot. Everybody's duking it out for those," said Jody Kahn, a vice president at John Burns Real Estate Consulting LLC, a company that surveys land brokers for their opinions of the homesite market.
In the Baltimore-Washington corridor, to the extent builders are finding finished lots, prices for those lots have moved up 5 percent to 15 percent in the first six months of the year, Kahn said.
"In what I call the 'A' areas, I don't know of any finished lots that have the infrastructure and are ready to go," said Bob Ward, the CEO of Bob Ward Cos., which builds homes in northern Baltimore County, Harford County and southern Pennsylvania.
Ward said that he expects increasing land prices will not have a significant effect on the price of new homes, however — at least as long as there is a healthy resale inventory. Homebuyers will always pay a premium for a new home, but comparable options from existing home stock generally keep new-home values in check, he said.
Nevertheless, the combination of many homeowners who are underwater on their mortgages and those who are unwilling to sell at current prices has created a smaller stockpile of homes for resale, he said.
If that supply of homes for resale isn't replenished, new-home prices may begin increasing with the rising cost of finished lots, Ward cautioned.
Michael DeStefano, president of Sturbridge Homes in Annapolis, said finished lots have long been hard to find in the most desirable parts of Anne Arundel County, like Severn. And unless developers start putting new subdivisions in the regulatory pipeline soon, DeStefano said, he expects finished lots in other parts of Anne Arundel to evaporate within the next few years.
Experts agree that the permitting process to turn raw land into finished residential lots in Maryland can take as long as two years, in large part because of storm-water rules intended to protect the Chesapeake Bay.
"Maryland is definitely a more restrictive place to do development," said Metrostudy's Jonas.
Because of the long lead time needed for a finished lot in Maryland, developers need to start investing in raw land now to prevent the lot shortage from worsening, she said.
"I think there's a tremendous amount of opportunity," Jonas said. "If you have land and you're thinking about selling it, this is the moment. They [builders] need it now and they need it for planning for the future."