Investors like to use the term underlying fundamentals as a fancy way to describe supply and demand. These days, when it comes to the Triangle's housing market, they're paying attention to that industry's most fundamental under-layer: dirt.
A string of recent residential-lot deals hints that the housing market may be edging closer to the bottom. But those deals don't forecast relief any time soon.
Though the sales indicate a thawing of sorts, they're being done at ice-cold prices, which could spell good news for some builders and homeowners and years of pain for many more.
Deals over the past two months help tell the tale:
Royal Oaks Building Group this week paid $498,000 for nine lots at Braxton Village in Holly Springs. The average price per lot was about 4 percent below what Royal Oaks paid last month for 13similar lots in the same neighborhood.
Across town, Garman Homes of Durham last month paid Olde South Homes $55,000 for each of seven quarter-acre lots in the Holly Glen East subdivision. That's about 10 percent less than it paid in October for seven smaller Holly Glen lots.
Also last month, Lennar, one of the Triangle's biggest homebuilders, paid $15.2 million for about 230 lots at Stonewater, a subdivision straddling the Wake and Chatham county line. The price per lot was roughly 20 percent below the average tax value of the neighborhoods' lots, which were assessed at the top of the market.
Imperial Custom Homes of Wake Forest paid $120,000 for four lots at Taylors Creek at the Neuse, a Raleigh subdivision. The price per lot, about $30,000, was 29 percent below what seller C&D Custom Homes paid for them in 2006, as land prices were heating up.
Many of the deals bring up the question often posed to limbo participants. And those who bought amid the frenzy hope prices don't go much lower.
The lot accounts for about 20percent of the cost of a home. Materials and labor costs make up about 50 percent. As land, labor and materials prices drop, those who bought homes a couple of years ago are vulnerable to losses. As the market recovers, sellers of homes built atop the boom -- particularly those who put little equity into the purchase -- could be competing with brand-new homes that sport lower sticker prices.
It could take many, many years for things to even out.
But that will depend on the availability of credit to builders -- just one in an amalgam of factors that has halted the dirt market in recent months.
The decline started as home buyers were stymied by tighter lending, which sapped demand for new homes. That left builders with gobs of inventory and little appetite to build more homes, let alone buy more land. New home permits in the Triangle fell 46percent last year. And lot sales evaporated, screeching to all but a halt as the year progressed.
A huge drop
There were 4,699 lots sold in Durham, Chatham, Franklin, Johnston, Orange and Wake counties last year, according to Market Opportunity Research Enterprises of Rocky Mount. That's off 57percent from 2007. The biggest declines were felt in the final three months of the year, when there were 729lots sold. That total -- a decade low -- was almost 75 percent below the quarterly average since 2003.
Although the number of lot sales has fallen in each quarter during the past year and a half, prices have held up. Until now. The average lot price in the six-county area was $60,388 during the fourth quarter. That's 15percent below the average during the same quarter in 2007 -- the biggest year-over-year drop since the start of the housing boom.
Meanwhile, the supply of vacant homes swelled 19 percent last year, Metrostudy data show.
The rash of recent deals indicates confidence among buyers that the wounds from the bust are beginning to clot. That, in part, is among the signs industry observers took from the announcement last week that Pulte Homes would buy Centex, creating the nation's biggest homebuilder.
At the same time, however, that deal and its genesis -- the frozen lending environment that created a time bomb out of maturing debt carried by Centex -- could foretell continued bleeding.
Indeed, it's too early to know for sure what the repercussions of that deal will be on land prices locally. And some question whether there will be any effect because the deal was not the standard, open-market, arm's-length deal.
Rough math shows that the $3.1billion stock-and-debt deal, to close later this year, comes out to about $44,200 per lot owned by Centex in markets across the country. Land prices in this region, where Centex owns hundreds of lots in more than two dozen communities, fall close to the middle of prices in other Centex markets.
But one needn't dig deep into that deal to understand the landscape, or its dwindling value.
As credit remains tight, builders big and small are facing maturing loans. Many are being forced to unload lots at losses, or pay more equity to extend loans for lots that have lost value. Those who can't unload inventory or cough up cash for extensions are facing foreclosure.
In January, RBC Real Estate Finance foreclosed on a dozen lots at Augusta Landing in East Raleigh. It bought seven of them for $20,786 each, or 45 percent below what the borrower, Four Season Construction, paid in 2006. RBC paid about $71,000 for five other Augusta lots. But the 87percent premium was due in part because there were new houses on some of them.
Just last week, SunTrust Banks foreclosed on three lots at the Netherfield neighborhood in Zebulon. The Atlanta lender paid $55,000 per lot, about 31 percent less than what the borrower, Mack Builders, paid in 2007. The lots could sell for less if the bank decides to cut its losses sooner rather than later.
That's just a trickle. Major local builders such as Denmark Construction, Anderson Homes, St. Lawrence Homes and others are seeking bankruptcy protection.
That means, in an effort to satisfy creditors, a lot more expensive dirt could sell dirt cheap.
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