It just so happens I’m appraising a piece of land that will be built out as a subdivision right now. This one is located in Carlsbad. The timeline to get all the preliminary work done necessary to obtain approvals and record the subdivision map is at least 2 years, and that’s if the developer is on top of things.
One of the things that’s apparent is that the market for subdividable land is extremely weak. Sales were steady up to the middle of 2005 and then it basically dropped off a cliff. Big surprise.
Anyways, my point is that many of the new sales are being built on land that was initially purchased as far back as 2002. After those lots are built out, there will be a 2-year lag between land purchase and sales of homes. Inevitably it is that lag that helps fuel the initial stages of the upcycle.
Of course, we still have to burn through all the standing inventory of new and resale homes before there will be significant demand for new construction. It might be worth noting that in 1995, the MLS recorded about 16,000 sales, which is about 50% of the volume sold in 2005. We now have 20,000 listings in the MLS, not counting the people who might like to sell but can’t.
IMO, these numbers do not favor a turn in the cycle until 2009 at the earliest. I’m GUESSING a 24,000 overall volume for 2007, followed by maybe as few as 18,000 in 2008. That might even be a little optimistic – one never knows.
If those numbers do come about, developable land may be a good bet in 2008. If you have the cash, you can lock a parcel up in contract whilst pursuing the development approvals and sell to a builder when the map is ready to be recorded. The builder pays the final installment of fees and permits, starts building and has product ready to sell in 6 months.
