Builders are complaining of lot shortages, despite a reported massive oversupply of lots. A contradiction? No. Although there is a bloated 60-month supply of vacant developed lots nationwide, many of the lots developed during the boom are geographically obsolete. They were developed too far from the employment hubs to be of any use to builders. Home sites in the best (“A”) locations are in short supply, and builders are bidding peak prices in some markets in order to keep building in the hottest submarkets. Some builders are starting to back off from those prices, preferring to build a little farther away from the urban core and pay a much lower price for lots.
In general, builders are not going into the “C” locations yet, although it is likely that they will do so fairly soon. When they do, they will have to be prepared to compete once again with distressed-price homes. There will be less pricing power in the more remote suburbs, and buyers will have more difficulty getting mortgages (for one thing, because a builder’s homes often fail to appraise in those areas). Builders will have a serious decision to make this year: pay big to stay in the “A” and “B” lots or take a market gamble and go below “C” level.