Builders buying vacant lots

The local housing market is in the doldrums, but a report by Matthew Jones of Real Estate Research Group has discovered that some home builders are being aggressive in the Charlotte area.

Not that it means we'll see many new houses sprouting soon.

Still, Jones found that despite weak demand from buyers, tepid home sales and falling sales prices, some home builders are "seeking to aggressively increase" their market share by buying vacant developed lots.

"There's going to be somewhat of a scramble to develop new lots when supply and demand reaches equilibrium," said Jones, a principal with Charlotte-based Forum Realty Capital, which provides real estate investment banking, brokerage, research and advisory services. Real Estate Research Group is part of Forum Realty Capital.

Home builders own or have under option or contract nearly 19,200 lots in the Charlotte area, Jones wrote in his report, which his firm produced with Storey Partners. That's an increase of nearly 16 percent from the 16,500 lots builders said they had a controlling interest in last year, Jones said.

The Charlotte area has roughly 34,000 vacant developed single-family and townhouse lots in the market, according to Metrostudy, a real estate research firm.

Survey respondents also said they plan to acquire 18,215 additional lots during the next three years. Jones surveyed the nation's top 25 home builders earlier this year for his report.

As Jones sees it, demand is getting close to matching supply. To him, that speaks to the long-term health of the Charlotte housing market.

"In theory, all the vacant developed lots in the market could be spoken for in the next three years," Jones said. "If that was to occur, it would make it very difficult for another builder to enter the market without having to develop new lots."

The region became saturated with empty lots when the housing market crumbled and builders stopped building new homes. Developers typically buy land and secure the necessary permitting, zoning and other entitlements and then sell lots to builders. Because the process can take two years, many developers were left with lots when the economy turned south. Many lots were foreclosed on or given back to lenders.

Bill Miley with Metrostudy said there's currently an 88 month supply of vacant lots in the metropolitan area. A normal market might have a 24-month supply.

The current inventory is down from a record high of 45,000 vacant lots in the second quarter of 2009, or a 103 month supply, according to Metrostudy.

Jones said that while lots may be spoken for, that doesn't necessarily mean builders will put homes on them in the near future. Housing starts will likely remain slow until the unemployment rate improves and people are able to afford and get mortgages. The market must also work through a glut of available homes, including foreclosures.

"Large public builders that still have access to the capital markets can take advantage of opportunistic buys," Jones said.

Currently, the area has about 4,600 single-family and townhome starts a year, according to Metrostudy.

When they do construct new homes, builders plan on making them smaller and cheaper than in the past, Jones' research shows. Most builders plan on selling homes priced between $150,000 and $249,999.