For our Clients and Friends,

For buildable lots and land to begin to sell again, we need the new construction industry to awaken. Below is an article of such an awakening and I think you will find some encouragement even as I have.

I have also provided an overview of the market at the end of the first quarter of this year and looking back 12 months. There is a lot of data to peruse. I have focused on parcels from 3 acres and larger for the data in this email.

I think there is light at the end of the proverbial tunnel. I would love your thoughts and response as always. Let me know what else we can do for you.

Randy

We are approaching five years since the bottom dropped out of the housing industry. Housing has suffered the severest blow of all sectors in the economy. The hardest hit segment of the housing industry has been new construction and selling buildable lots and land.

Is all of that about to change?

There are some builders who are building new homes as fast as they can be constructed; they are all selling as pre-solds, and they are producing acceptable profits for the builders and the lenders. This in spite of the fact that re-sale home pricing in general is below the cost to build. Through our representation of Forest Glen, a gated luxury community in McMinnville we have been exposed to builders such as Tom Liesy of T. A. Liesy Homes (www.taliesyhomesnw.com ) who is successfully building and selling in Happy Valley (Sunnyside/Clackamas area). Happy Valley has been our own version of California’s disastrous housing crash with losses in excess of 50%.

What is happening to change things? Is this a lesson and a pathway for the recovery of new construction and to the restoration of sales for buildable lots and land? I think it is. Here is what we are learning:

1. To invest well, one needs to buy well:

Happy Valley (and Bend etc.) was the focus of wild speculation until 2007. The price of land was at an altitude which is head-spinning. Today all that land has been through foreclosure and/or bankruptcy and lenders have sold this off at bargain rates to anyone willing to risk building. In our area First Federal sold Forest Glen lots at $43k per lot, down from $280k for some lots at the height of the market. Lots were subsequently sold to builders at wholesale prices above that but still at prices allowing the builder to become competitive with re-sale homes. Lesson one: the price of the land is fundamental to making sense of building at a time like this.

2. To sell well, one must provide great value and incentive; more value than the resale markets:

Builders must forget about the past and understand that almost everyone related to our industry has taken losses of at least 30% and commonly up to 50% (and for some more). Buyers today can and do demand high quality, good space, and desirable amenities for a low price or they will not buy. What will you do? Meet the market demand or sleep it off for the rest of the decade? Builders who find ways to become successful now are growing their reputation and market share now, and are well positioned for greater profits in the future as recovery matures.

3. Is there money available for buying land and for new construction right now?

Yes, but not through normal channels. The builders who are successful are using private money which is also known as hard money. It costs more but it is readily available now rather than waiting for conventional financing to loosen up years from now when it is too late to play catch-up. Remember, hard money is also at historic lows. You will not get today’s amazing sub 4% financing for the project, but most builders are not strangers to the 7-10% they have paid in the past. Think bigger picture; someday in the not too distant future, 7-9% will be the norm for everyone.

Some buyers will still come in with cash to purchase the lot or parcel, and some already have construction-to-perm lending set-up, but for most people today that is an overwhelming task. Today’s successful builders build the home on their own dime. When the construction is complete then the transaction can close with the buyers’ traditional financing with whomever they choose (just like buying a re-sale home). Helping buyers avoid the nightmare of new construction financing is not only crucial right now, it is a huge value for the buyer and that is the heart of the issue of getting them back into the new home market. With just earnest money down, their ‘pre-sold’ home is completed and the buyers get their own loan at historically low interest rates (recently as low as 3.6% for 30yr fixed) with their favorite mortgage broker or bank.

4. No Games; No Gimmicks Allowed:

Before the crash, builders often partnered with preferred lenders for a cut of the profits of the loan. Pressure (often flagrantly unethical pressure) was put on the buyer to use their in-house lender so the builder could have another income stream.

We all remember the days of builders (particularly the national and regional builders) pricing the basic home and then hard-selling all the amenities. With every amenity came a huge mark-up and of course no credit for the fixture that was already factored into the price!

Tom Liesy welcomes buyers to get their own best financing to complete the sale when the construction is complete. He offers his buyers his contractor’s discounts with his vendors on any upgrades beyond his already generous amenities and then does not take builder mark-ups for these upgrades. Any personal choices and changes to amenities and are strictly between the buyer and the vendor. Welcome back, Trust!

5. How can this be model be profitable?

I am certain the public would be shocked at the profits builders were making in the heady days now a long time ago. There was a lot of room for adjustment before pleading poverty. Today, the only way a builder will be able to plead poverty is to remain in the past and stay unemployed for the foreseeable future. Entrepreneurs always find a way to meet market demand with good supply. Determination and creativity can overcome any challenge…

And hard work and intelligent strategy! One must become efficient. Systems and the people to carry out those systems efficiently, are always key to increasing profits and achieving success. Tom can build any home in 75 days. Does that mean it is cheap and poorly constructed? Not if the builder is demanding high standards and the same drive for efficient profitability from his sub-contractors. If the system is thorough and self-policing for quality, then it is a win-win for buyer and builder.

A good sales force is also crucial. The builder should focus on what he is expert at- building quality homes offering the best value to the marketplace and achieving well-earned profits. Select Realtors® can add their expertise to build the brand (the builder), market the project (the neighborhood, the development), create demand, advertise and promote each home, and then manage the entire sales process from farming for prospective buyers to closing happy owners and gaining their referrals for future sales. Even in times of strict accountability for every dollar spent, effective marketing and sales adds value and creates profits.

In the past, builders could not ‘afford’ to pay Realtor® commissions; this myth has been forcefully debunked as former profit margins came to light. Yes, builders could just put a sign out and sell their homes. Today, successful builders partner with competent and proven marketing and sales professionals to create demand and to go out and find buyers. Today builders also need any Realtor® to be willing to bring their clients to talk with builders knowing they will be paid for their services.

There are no longer excuses for the new construction industry to stand idle. Visionary leaders and hard working entrepreneurs are already proving in our markets that it is time for the public to again have options for buying new homes. Bold builders who are willing to face reality straight-on are showing that new construction can compete with the historic low prices of re-sale real estate and win more and more buyers. These pioneers will be tomorrow’s great success stories.

For our clients selling buildable lots and land, the revitalization of the new construction industry will overflow from developments to the countryside.

This is good for all of us!

Randy McCreith, Principal Broker

Randy McCreith

The following real estate properties sold or went pending this past week in Yamhill County. These lists include residential properties as well as lots and land. See other current market conditions and market forecast for Yamhill County and Portland.

This is the third article in this Lots & Land series. Read Part 1. Read Part 2.

These charts are the Active Listings and Pending or Bumpable Sales (agreed upon offer but not closed).

Lots & Land – Active Competition in Yamhill County

Lots & Land – Active Competition in Surrounding Counties

The first list looks at the active competition within Yamhill County and the second examines the competition in the outlying areas. Within Yamhill County, we have 90 competitors and only two current pending sales. Interesting that both pending sales are in high priced areas – Bald Peak and Wilsonville Rd.

These are the properties contending for the few buyers in the market place. It should inform us about current thinking on prices but also provide fodder for strategies to be one of the few to sell soon. I can provide you with more specific information on any of these properties you request.

What is left? To take a look at your property particularly and the best comps, both sold and active, for re-evaluating the price and condition of the property.

Although all of this information can be tedious and disheartening, we are hoping for better days ahead when things will begin to sell again at a more reasonable clip. We want to be ready to move, not to remain on the bench.

Stay up to date on real estate market data and conditions for Yamhill County and the surrounding areas on our website  - Visit Current Market Data for regular updates.

Best regards,

Randy

This is the second article in this Lots & Land series. Read Part 1 here.

I am providing you with actual sales data below for sold land in Yamhill County so we can take a fresh look at the market. I recommend looking at the 3 year attachments first and then zeroing in on the recent solds.

Lots & Land – Sold in last 3 years

Lots & Land – Sold in last 3 years Comparison Format

Lots & Land – Sold in last 12 months

Lots & Land – Sold in last 12 months Comparison Format

Lots & Land – Sold in last 12 months in other Counties in the area

Yamhill County is a massive rural county with two ‘cities’ and 8 additional small towns. We have a lot of land on which people can build. Some of this was a result of Measure 37 and then the more limiting Measure 49, but we also get buildable parcels from Forest Template conversions which allows build-ability if your property meets the template/overlay requirements. Land has also become dividable and buildable because a farmer can show proof of $80k in income (often grapes or nursery stock) for 3 years and then consistent with zoning laws it can be made buildable (usually on EFU 80 acre zoning). There are also many legacy tax lots which through persistent and esoteric measures can be made buildable. As towns expand, close-in land may also get re-zoned for smaller and smaller parcels.

In the past 36 months we have only sold 48 parcels between 2-20 acres. Many of these parcels are really residential parcels with sub-standard housing such as an obsolete manufactured home or a deteriorated farm house. Some are still livable while the buyer ‘builds their dream home’. Some are just vacant land and then those are differentiated by some having ‘improvements’ – well, septic, barns or shops, etc.

In the attachments you will find the lists and listings of the properties that have sold in 3 years sorted by town. In the list you can see the pricing per town and see the number of acres for each. Clearly Newberg, then McMinnville and Dundee can achieve the highest pricing. The listing information on the comparison format (side by side) is near the top and the sold date and price is near the bottom so you can see the last advertised price and the actual sale price. The Client Full version will give you more details in the write-up and will address issues such as water, power, septic, views, fencing, build-ability (some may be questionable), outbuildings and the like.

Regarding pricing, people have asked, and can ask anything they want. We have seen that in the past 3 years the original numbers have changed dramatically as our markets on average are down about 25-30% from the highs. The SOLDS are our only authority for market value and the only thing an appraiser can use to document value for a buyer or lender. Remember, the appraiser needs 3 good and local comps to substantiate the value so just one ‘good’ comp will not necessarily allow us to score big!

I have also attached the last 12 months which are our current comps. There are only 10 solds for the whole county and really 9 because one of these is commercial land. We will be re-evaluating pricing with all our clients in the first quarter to help with decisions, and if to sell, help to accomplish the task.

Finally, I have attached an over view of solds in other areas surrounding Yamhill County. Remember, one of our challenges is that right now people may be able to buy economically closer to Portland and have better prospects for equity growth. I have included the north of Yamhill County which is Forest Grove through Hillsboro (including Bald Peak), east of Yamhill County including rural Sherwood, Tualatin, and Wilsonville, Marion county to the southeast, and Polk county to our south. Some of the areas only contain bigger parcels than the 20 acres in our purview.

The next post will focus on the active and pending listings – your current competition.

Stay up to date on real estate market data and conditions for Yamhill County and the surrounding areas on our website  - Visit Current Market Data for regular updates.

Read Part 3 of this series

As always, I would love to have your comments, observations, and ideas…

Randy

One of the most negatively affected property categories during the past 3+ years is buildable land. In the early and mid part of this past decade, I used to say that if I had enough buildable small parcels in Yamhill County, I could sell one every day. Since the market began to deteriorate in summer of 2007, these parcels are almost unsalable.

What dynamics are hindering the sale of what normally is high demand real estate?

1.    Excessive inventory is the most fundamental culprit. During the market surge in 2005-2007 builders, both national production builders and local builders, built fast and furiously. It seemed every sub-contractor now became a general contractor and home builder. Corporations poured amazing amounts of money into purchasing large tracts of land anywhere in the country they could find it, even if it meant moving farther and farther out of urban centers. By the time the housing Tsunami hit and did sudden damage, the amount of new construction in the city and in the country was astronomical. The result has been profound oversupply.

2.    Lack of Lending: For years now lenders refuse to lend to build anything new. They viewed the oversupply as a systemic problem; this is not surprising since most of their great losses are on development land (think also M37 and M49), somewhat un-built subdivisions, and higher end homes which got caught in the vortex before they could sell. Builders almost universally have been through bankruptcy or suffered significantly damaged credit and cannot afford to build even now. Banks have tight controls on developers and builders and manage them with rigid ferocity. Only the few individuals who are well-qualified, and able to purchase the lots & parcels for cash, can get financing for new construction right now.

3.    Why the drastic change in people? Why are people not deciding to buy land and build right now? It is because they can find so many bargains that are move-in ready! The inventory is large and the opportunities close-in to downtown Portland are plentiful. You can buy rural estates in the Stafford area of Tualatin, equestrian properties in rural Wilsonville, and luxury homes in the Parrett Mountain View Estates in Sherwood for half price (down by up to $1.5 million)! If you were going to make a purchase which offered the best return in the future would you choose farther out or closer in? So are they!

4.    The industry is upside down: This past week I went to a Greater Oregon Appraiser Institute Association Meeting in Tualatin to learn more about new construction challenges and particularly the issues for appraisers getting the job done. Representatives from DR Horton, Legend Homes, and Renaissance Homes formed the panel with John DeCosta, an accomplished Realtor®. They painted a picture which is not pretty! Lots have been devalued by more than 50%, builders can only achieve modest margins if they buy really low and build with high efficiencies. Universally buyers are brutal and demanding and all of us are held hostage. But even worse, new homes, not yet occupied are now lower in price than their replacement value. A couple of these companies had the advantage of jettisoning their debt and re-negotiating their high priced lots. It does not seem fair to all but they have lived to build again. The rest of our clients- they get to take the losses personally.

5.    Demand is almost non-existent:

• Buyers have too many better options now, yes. Finding a lender is challenging, yes. But there are more dynamics…
• We have experienced a significant cultural change in style in the last decade. The flow from the city to the suburbs to the country which began in the 50’s has been reversed. We have moved-on past country styles and to illustrate that try to find an antique store- they are gone! Urban life is in high demand; just think about the development of the Pearl District in Portland. It boggles the mind what happened to this previously wasted industrial ghetto.
• The Green industry is also affecting building and choices. Some are considering the costs of commute, the utilization of resources, high density rather than suburban spread, and enjoying higher quality but in smaller spaces. Sometimes this translates to influence issues like our location and the size of properties.
• Uncertainty! The times are fearful and we are contracting our lifestyles, doing with less, driving less and cutting commute costs and expenses. Building in the country is something dreams are made of and right now not too many people are dreaming. Most people are becoming quite conservative and protective of their futures. Some believe this recession will thoroughly change the next generation’s expectations and lifestyles.
• In our area we have populated rural properties mostly with buyers from the Sunbelt states; that is, the California markets, Phoenix, and Texas (mostly Austin). These people are locked up in their states and cannot sell their homes to save their lives! When things do break through, guess how much money they will be coming with… A safe guess will be less than 50% of what they had before.

It has been bad for those trying to sell lots and land and it still is the biggest challenge for us. Is there any good news? Here is my take on that: Land is a limited and desirable commodity; it will come back as the market improves. Land is more limited in Oregon because of our land use laws which are perhaps the most restrictive in the nation. Fads and movements change and are cyclical. I am optimistic that we will see the housing market turn the corner this year but the market return will likely be slow and competitive for many years to come. Since buyers will be few, pricing and presentation are of paramount importance. You will need to be the best value (not necessarily the lowest price) and your property must be presented in its best light with as many amenities (hooks) as possible. Think about clearing areas on the property, identifying building sites, installing a septic system or a well or fencing. Think about adding a driveway or improving it or the road near the property. Of course it needs to be mowed, and berry bushes and weeds need to be controlled for the best expectation.

Recently I wrote an article about predicting the future, which can be a futile exercise vs. practicing the fundamentals regardless of conditions. That article meant a lot to me and expressed our desires and commitments to you. While we cannot create buyers nor would we want to sell them something they do not want (even if we could), we can present your property well and publicize it widely. We can handle every inquiry with care and precise responses. We can persuade and negotiate with skill and passion to make an offer work and keep it alive during the difficulties of the transaction. We can help you achieve your goals. We can do that if we are faithful to the fundamentals of our trade and keep our client’s interest first. We built our business on these principles and we are determined to continue to practice that which made us successful. We think this can make a difference even during a time like this.

Stop by the blog tomorrow for the next installments of this series with hard core sales and pricing data based on Yamhill County Lots and Land.

Stay up to date on real estate market data and conditions for Yamhill County and the surrounding areas on our website  - Visit Current Market Data for regular updates.

Read Part 2 of this series

Best regards,

Randy