Watch Those Land Prices

While today’s low interest rates have added to consumers’ ability to keep buying homes, it might be time to read the tea leaves.
By Stan Ehrlich, Contributing Editor | February 28, 2002

While today’s low interest rates have added to consumers’ ability to keep buying homes, it might be time to read the tea leaves.

A rise in the unemployment rate will ultimately affect the housing market. And therein lies the dilemma: Not having inventory when the market is hot results in missed sales. Too much inventory in a down market results in higher carrying costs.

Run your project numbers with two new assumptions: Housing costs might peak and even drop in some parts of the country, and carrying charges will rise if sales slow. To offset both, become an opportunity land buyer. Walk away from projects that might be borderline. If need be, change your construction mix so you build for the market that is hot even in a slowing economy.

Be certain you’re not holding anything at above-market prices when the slowdown happens.

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