Sales of residential lots are picking up in the Puget Sound area, fueled by significantly lower prices and optimism that the housing market will be on the mend by the time houses are built on these lots.
Last month,Puyallup-based SDC Homes spent $400,000 on five lots in two developments in Soos Creek, in Kent. At the same time, national home builder D.R. Horton, of Fort Worth, Texas, spent $3.5 million acquiring 46 lots in three projects in Soos Creek, Federal Way and Tahoma.
King County lot sales jumped 135 percent, to 122, in January, up from 52 in the same month the year before, according to New Home Trends Inc., a research and consulting firm in Bothell. The average price dropped nearly 29 percent over the same period, to $153,279 from $215,385. For comparison, in all of 2009, there were 398 lots sold in the county, at an average price of $126,382.
“We’re seeing a lot of activity,” said Todd Britsch, New Home Trends president.
The sales suggest that more developers and local banks are unloading their backlog of distressed properties, instead of waiting for prices to recover. The sales also suggest that developers are getting ready to start building again, which would bring back construction jobs and tax revenue for struggling local municipalities.
To be sure, recovery in the housing market could be two years or more away. And there’s much distressed property to work through: During the boom, some 450 lenders made $17.47 billion in loans for construction acquisition and development in the Puget Sound area, according to New Home Trends. But bargain prices and renewed private investment are helping spur sales. And since it can take three or four years to turn raw land into a completed house, developers are in a hurry to restock their pipelines so they’ll be ready when the housing market finally recovers.
The surge in lot sales also is being fueled by the bargain prices available in distressed sales, said Ron Branch, managing broker at Branch Land Marketing in the Kirkland office of Windermere Real Estate. Branch recalls selling a cluster of lots in Bothell in 2006 for $195,000 a lot. Branch said he resold those lots a couple of years later at $60,000 a lot.
Though the housing market remains soft, builders understand they won’t be able to match the current low lot prices even a year from now, Branch said.
“People see it as an opportunity to pick up ground and be poised for a little bit better market,” he said.
For some sellers, the cost of carrying the property is too great, so they are offering it even if the timing is not ideal. HomeStreet Bank is in the process of selling “virtually everything” in its portfolio of distressed properties, CEO Mark Mason said in an email. “We’ve elected to re-price and sell rather than hold onto property and speculate on price improvements,” Mason said.
Mason said developers are realizing that shortly there will not be an adequate supply of buildable lots to satisfy the appetite for new homes in most Puget Sound area markets.
With lot prices down by a third to a half of their value during the boom, home builders will be able to deliver more affordable homes — should they so choose — when the housing market revives.
Competition for lots in the more desirable, closer-in markets is particularly keen. There’s been a land grab in Maple Valley in recent months, with a number of builders snapping up residential lots for future housing development, said Branch.
Quadrant Homes and joint venture partner The Murray Franklin Family of Companies sold 900 lots in Redmond Ridge and Snoqualmie Ridge last December to Michigan-based national home builder Pulte Group for more than $50 million.
Among the region’s most active lot shoppers, according to Quadrant President Ken Krivanec: D.R. Horton Inc.; Pulte Group Inc., which develops homes under the Pulte, Centex, Del Webb and DiVosta brands; Polygon Homes Ltd., from British Columbia, and Puyallup-based SDC Homes.
Quadrant, meanwhile, is also shopping for lots in King, Pierce and Snohomish counties, Krivanec said. Quadrant sold 478 homes last year, and Krivanec said he aims to match that volume this year.
The uptick in sales also is being driven by a new infusion of capital into the sector. Many banks, burned by bad real estate loans during the boom, are wary of lending, but private investors increasingly are taking their place.
Bob Vick, general manager of Sundquist Homes LLC, in Lynnwood, has four projects under way, backed by an international investment group and a Canadian investment group. Vick said there’s either no money available from banks or it’s difficult to obtain. “Cash is king,” said Vick. “The more liquid the builder, the better,”
Despite lower prices, some distressed lots could be a hard sell.
“There is a significant amount of bad, small plats out there that never should have been developed,” Britsch said, due to lot size, location or other issues.
That said, new owners could resolve some of those issues by combining small lots to form bigger lots or reverting to the property’s original use.
For example, a proposed 236-unit townhome project that was to replace a mobile home park in Bonney Lake has been shelved in favor of erecting a new mobile home park on the site, while a 33-acre parcel in Auburn will be completely re-platted to accommodate 70 lots, Branch said.
To be sure, not everyone agrees the market for residential lots is picking up.
“Just because there’s been an increase over a couple of months or quarters, (this) is different than being a sea change in the industry,” said John Ochsner, Pacific Northwest division president for Pulte Homes. “It just means the banks and the landowners got to the point where they had to make a decision on a (bank-owned) property or to reposition themselves.”
Among the region’s most active lot shoppers, according to Quadrant President Ken Krivanec: D.R. Horton Inc.; Pulte Group Inc., which develops homes under the Pulte, Centex, Del Webb and DiVosta brands; Polygon Homes Ltd., from British Columbia, and Puyallup-based SDC Homes.
Quadrant, meanwhile, is also shopping for lots in King, Pierce and Snohomish counties, Krivanec said. Quadrant sold 478 homes last year, and Krivanec said he aims to match that volume this year.
The uptick in sales also is being driven by a new infusion of capital into the sector. Many banks, burned by bad real estate loans during the boom, are wary of lending, but private investors increasingly are taking their place.
Bob Vick, general manager of Sundquist Homes LLC, in Lynnwood, has four projects under way, backed by an international investment group and a Canadian investment group. Vick said there’s either no money available from banks or it’s difficult to obtain. “Cash is king,” said Vick. “The more liquid the builder, the better,”
Despite lower prices, some distressed lots could be a hard sell.
“There is a significant amount of bad, small plats out there that never should have been developed,” Britsch said, due to lot size, location or other issues.
That said, new owners could resolve some of those issues by combining small lots to form bigger lots or reverting to the property’s original use.
For example, a proposed 236-unit townhome project that was to replace a mobile home park in Bonney Lake has been shelved in favor of erecting a new mobile home park on the site, while a 33-acre parcel in Auburn will be completely re-platted to accommodate 70 lots, Branch said.
To be sure, not everyone agrees the market for residential lots is picking up.
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