What will happen when the residential real estate market is overbuilt, mortgage money is getting tighter and construction costs are heading up? All these aspects combined will typically bring you a soft market that will dampen demand for vacant land and will as a result put downward pressure on prices. That is exactly what is taking place in Southern Nevada now.
At the end of the third quarter, median raw land prices decreased to $677,000 per acre, which is down $41,200 from the quarter before, according to Applied Analysis. If you recall, earlier in the decade land prices were zooming to feed the feverish residential construction boom that was spinning the heads of anyone who knew anything about real estate. Since then things have changed dramatically and mellowed to a back-pedaling act.
As another sign of the slowdown, there were only 140 parcels totaling 484 acres sold in the third quarter, signifying a 45% drop from last year. One of the reasons to the downdraft is the lack of developable dirt. The major landowner here is BLM, or Bureau of Land Management, and its next auction isn't scheduled until November 2008. Yes, a year from now. And it will at that time release for bidding only around 150 acres in small increments. That will have a marginal impact on the current situation, if any.
The underlying weakness is caused by the huge housing inventory presently hovering over the area, forcing developers to the sidelines where they are patiently waiting for the conditions to pick up. When it makes sense again for them to acquire land and build homes on it at a respectable profit.