His argument seems to be based mostly on costs. Nationwide and in the average this might make some sense but it doesn’t apply as directly here. On a nationwide basis hard costs (excluding developer profit margins) have increased in the last 10 years by a total of about 47%, or right at about 4% per year. That means that – on a nationwide basis – a $100,000 construction project in 1998 would have an equivalent cost of $148,000 today. So yeah, it’s more; but it’s not 100% or 200% more.
So where did all the other “costs” come from during the interim that caused these properties to double and triple in value? Profit margins. Not just at the developer level, but at every level. That includes the markup of the materials, the markup of the labor, the markup of the marketing and financing, and of course the increases in local development fees and permits.
And before someone starts talking about oil, that’s already included in the hard costs.
Now the increases in fees and permits will stay no matter what, ’cause that’s the nature of government. But all the other “gas” in those costs can and are being bled off as we speak. Land costs have already dropped by over half in some areas – I just saw an example of that last week. There’s lotsa room left in those costs to drop yet.
Once our local costs get back in line with the national costs then there’s no reason the $200,000 new home from 1996 won’t be equally profitable to build with a 2008-equivalent sale price of about ~$285,00o plus another $5k or so of additional fees that have come online since then.
BTW, in 1998 that 200k would have bought you a new home of about 2,000 SqFt in any of the towns along the Hwy-78 corridor and with 5% down your PITI payment with a 7% mortgage would have been about $1,500/month.
Whether the retail pricing on new homes in these size ranges will actually get to the $290k is a different question entirely, but from a COST basis it is certainly possible.
Those contractors just won’t be driving new 4×4 crew cab assault vehicles every year.
