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Lot values trail behind inflation

Lot values for single-family detached spec homes continued to rise in 2022, with the national value and six out of nine Census divisions setting new nominal records, according to NAHB’s analysis of the Census Bureau’s Survey of Construction (SOC) data. The U.S. median lot value for single family detached for-sale homes started in 2022 stands at $56,000, with half of the lots valued higher and half of the lots valued below the median.

Even though lot values continued to rise across most regions, the overall US inflation averaged 8% in 2022 and outpaced lot appreciation in all divisions, except the East North Central and South Atlantic where lot values increased even in real terms, that is after being adjusted for recent high inflation. In the East North Central division, lot values surged 42% and reached a new historic high, in both real and nominal terms.

On the national level when adjusted for inflation, median lot values remain below the record levels of the housing boom of 2005-2006 when half of lots were valued at or over $43,000, which is equivalent to about $62,400 when converted into inflation-adjusted 2022 dollars. It is prudent to remember that new spec home construction experienced dramatic shifts towards smaller lots over that time period, with the share of lots under 1/5 of an acre rising from 48% in 2005 to almost 68% in 2022. So even though current median lot values are not record high in real terms, they reflect a very different mix of lots compared to the housing boom years or even a decade ago.

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The fact that lot values keep rising as their size shrink reflects ongoing challenges builders face in obtaining lots. Even though lot shortages are not quite as widespread as they were in 2021, their current incidence recorded by the May 2023 survey for the NAHB/Wells Fargo Housing Market Index (HMI) is second highest on record since NAHB began collecting this information in 1997.

There is a substantial variation in lot values and appreciation across the US regions. New England has been a division with the most expensive lots for decades. Most recently, it has been in a league of its own with its median lot prices more than tripling national medians in 2022. As of the latest SOC data, half of all single-family detached spec homes started in New England in 2022 were built on lots valued at or in excess of $180,000. New England is known for strict local zoning regulations that often require very low densities. As a matter of fact, the median lot size for single-family detached spec homes started in New England in 2022 was 2.5 times the national median. Therefore, it is not surprising that typical SFD spec homes in New England are built on some of the largest and most expensive lots in the nation.

The Pacific division has the smallest lots. However, median lot value reached $150,000 in 2022, the second highest median in the nation and a new nominal record for the division. As a result, Pacific division lots stand out for being most expensive in the nation in terms of per acre costs.

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The neighboring Mountain division hit a new record high, with half of the lots for SFD spec home starts valued at or in excess of $81,000. This made the Mountain division lots third most expensive in the US.

As mentioned above, the East North Central and South Atlantic divisions registered the strongest growth in lot values in the nation. Median lot values in East North Central surged 42% to a new high of $71,000, division’s record even when adjusted for inflation. The South Atlantic division recorded a 19% rise in lot values and set a new nominal record with half of single family detached for-sale homes started in 2022 registering lot values of $50,000 or higher. Despite the fast appreciation, South Atlantic remains home to some of the less expensive spec home lots in the nation, valued well below than the national median of $56,000.

The neighboring East South Central division recorded the lowest median lot value, with half of SFD spec homes started in 2022 registering lot values of $45,000 or less. Typical lots here are also significantly larger than a national median, thus defining some of the most economical lots, as well as lowest per acre costs in the US.

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Lots in the West South Central, which includes Texas, appreciated at a more moderate pace in 2022, falling behind the overall US inflation. It was a welcome change after recording some of the fastest lot value appreciation in recent years. Just a decade ago, half of the SFD spec home lots here were valued at or below $30,000, almost half of the current median of $58,000.

For this analysis, median lot values were chosen over averages since averages tend to be heavily influenced by extreme outliers. In addition, the Census Bureau often masks extreme lot values on the public use SOC dataset making it difficult to calculate averages precisely, but medians remain unaffected by these procedures.

This analysis is limited to single-family speculatively-built homes by year started and with reported sales prices. For custom homes built on owner’s land with either the owner or a builder acting as the general contractor, the corresponding land values are not reported in the SOC. Consequently, custom homes are excluded from the analysis.

 

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