WASHINGTON (6/4/14)--Smaller homebuilders are finding fewer and fewer parcels on which to erect new houses, possibly leading to higher new home prices for those in the market, a survey by the National Association of Home Builders (NAHB) has found.
According to the survey, 59% of builders reported a "low" or "very low" supply of developed lots in their markets. A developed lot allows builders to begin construction immediately.
That short supply could drive up the cost to build and, in turn, buy new homes.
"Builders price homes based on what they are going to have to pay for all the ingredients," David Crowe, NAHB chief economist, told MarketWatch (June 3). "If they are starting to pay more for lots, they are going to pass that on right away."
Further, builders said that prices for the two most desirable lots, called "A" and "B" lots, have risen higher than levels seen a year ago.
Crowe attributes the shortage to the fact that many developers didn't keep faith that demand for new homes would return after the recession, so they have failed to develop lots over the past several years. And those who did want to develop had difficulty finding financing.
But while the survey tracked mostly smaller homebuilders, the 10 largest players in the industry, which make up about a quarter of all home construction in the United States, could be faring better.
For example, Toll Brothers reported owning or controlling more than 50,000 home sites at the end of April, an 11.5% jump from last year.
Meanwhile, of the 387 respondents to the NAHB survey, most build less than 25 homes per year. And nearly 90% of them said that national builders buying lots have a "significantly" or "somewhat" negative impact on price or the availability of lots, according to MarketWatch.