Builders eye outer lots for entry-level buyers
WASHINGTON – Feb. 17, 2016 – Builders are starting to target home construction sites on the edge of cities – what they call C- and D-grade lots – that generally require a longer commute for homebuyers. These exurbs have largely been ignored in the years since the recession, but a limited number of affordable suburban and in-city lots has sparked a comeback.
With financing often severely limited, builders have catered to wealthy buyers since the recession by focusing on prime-location lots, close to big cities, with A- and B-grade spots. But as the housing market has come back, builders are realizing that there's a mostly untapped market of entry-level buyers who want to buy new. However, that may mean new customers must go farther out to get an attractive price tag.
For nearly a decade, builders have waited for their C- and D-grade developments started pre-recession – some with half-graded lots and unfinished amenities – to return, but they wanted to see home value increases before making a new commitment. Some of the developments switched builders as they sat in limbo.
"In 2014 and 2015, public builders were very reluctant to look at C and D markets," says Mark Boud, principal of Real Estate Economics. "In 2016, they're beginning to turn their heads a little, and I think developers have taken note of that. They're beginning to reactivate in those areas as builders show more interest."
For example, some builders are starting to eye lots 40 minutes or so from major cities. Builders from markets like Houston, Denver, Las Vegas, and Albuquerque, N.M., are moving out to submarkets.
"The more interior core markets are reaching the point where they're really more or less built out," says Jay Colvin, Metrostudy's regional director of the Carolinas.
"You wouldn't have done this three years ago, because there was still plenty of land to go around right in Denver, at reasonable prices," Rick Dengler, regional president for Brookfield Homes, told BUILDER online. Brookfield Homes has a development called Barefoot Lakes about 40 minutes north of Denver. The builder purchased the development in 2007 but hasn't done anything with the property until recently.
In Albuquerque, builders who want to offer more affordable home choices have to go beyond nearby prime A and B locations.
"A few years ago, there were plenty of foreclosed lots closer in, but now that those lots are all consumed, builders and mortgage companies are moving back out and going after first-time buyers," says Vinny Pizzonia, co-president of EOS New Homes. "We started looking around for ways that we could compete, which includes looking for sites that are farther out."
EOS has built some spec homes on lots in Los Lunas and north Rio Rancho, about 30 minutes south and north of Albuquerque. The builder sold seven homes within 10 days; the homes had a base price of $79,900.
"It is a little further out, sure," Pizzonia told BUILDER online. "But we build in other locations about 15 minutes closer in and [know that the extra] 15-minute ride can save you $50,000."
Source: "Lots of Risk," BUILDER Online (Feb. 8, 2016)
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