3rd Quarter of 2023, Des Moines Metro Lot Analysis
It is the end of October, and in my house, it means that we are all things Halloween! The house is decorated, the candy is out, and the spirit of All-Hallows Eve is much alive in my four daughters. I can’t help but see my five-year-old self in my girls. Me, decked out in pirate garb, featuring a bandana, eyepatch, toy sword, the whole getup, preparing to scour the streets of South of Grand in hopes of retrieving a bounty of King-Sized candy bars from Des Moines’ elite on Beggars’ Night.
However, this time of year is not all fun and games. In novelist Joy Fielding’s words, “October was always the least dependable of months… full of ghosts and shadows.”
While not all bad, I think this quote is a good way of looking at the state of the economy, and more specifically, the Des Moines Metro’s New Construction and Developed Land Market.
At the time of this article (10/30/2023), there are currently 1,433 new construction homes for sale, or about 43% of all current residential listings. As stated in previous quarterly articles, new construction historically makes up about 20% of all residential listings in this market. Low resale inventory has forced builders to supply the market with more housing even during these turbulent times.
National news is painted with challenging economic data for the third quarter of 2023. Some of such data includes:
- Stagnant wages
- Student loan payments starting back up
- Auto and writer strikes
- High interest rates killing deals
- Global turmoil
- Relentless inflation
Of these bullet points, interest rates continue to be the biggest challenge. The full-effect of higher interest rates has not yet been fully realized, and unfortunately, higher interest rates will likely continue to be prevalent through 2024. There will continue to be fallout from this.
Built-to-rent is becoming more and more popular. It gives builders the ability to build through lots and land and should be considered if financing can be obtained and if the end project will cashflow.
Like it or not, as The Wall Street Journal reported, one cannot ignore the fact that “It is now 52% more expensive to buy a home than to rent one because of climbing mortgage rates.”
If a builder needs to free up cash or mitigate debt, now is a good time to consider selling lots and land, even if it is at a small discount. Interest rates have doubled since the acquisition of many of these assets, making them infeasible.
Conversely, not all is bad in the real estate market. There were 689 new construction sales in the third quarter of 2023. As I have mentioned numerous times in previous quarterly articles, a healthy lot market has a 30-month supply of lots.
With 7,055 vacant, developed, single family and townhome lots in existence, the metro’s lot market is finally in equilibrium! Having tracked the metro’s lot inventory for over 15 years, I believe this is the first time that I have seen where the market is at an even 30-month supply.
Also, third quarter building permits for new construction townhomes and single-family homes are up. Third quarter of 2022 had 777 new construction permits while 2023 had 920 new construction permits, an increase of approximately 18% year-over-year. That is worth getting excited about after the drastic fall in permits that 2022 experienced.
Finally, the building community is adapting. Compared to 2022, new construction, for sale, townhomes have increased in availability. It is through this denser product that builders and developers are able to try and counter high prices and high interest rates and offer the market a more affordable option. New condos and townhomes currently account for about 30% of new construction homes on the market. That’s up from about 20% a year ago.
Interest rates are something that cannot be ignored. They are the 1,000-pound gorilla in the room. But there are also good things happening right now. Building is increasing and activity breeds activity. Different product-styles are being offered to a market trying to make housing more affordable.
Finally, the Des Moines Metro’s lot market is in equilibrium, which has me as excited as my five-year-old self on Halloween, pirate outfit and all! While times like these can be inconsistent and unclear, always remember that smooth seas never made skilled sailors.
Nathan Drew, Broker/Owner of Drew Realty, a lot and development ground brokerage, has been in the business of lot and land acquisition and disposition since 2008. He keeps an ongoing inventory of all vacant lots and land throughout the Des Moines Metropolitan Area, and puts together a quarterly email blast with an interpretation of the metro’s lot market. Email Nathan to join his email blast list at Nathan@DrewRealtyUSA.com and follow him on Twitter @DrewRealtyUSA, on Facebook @DrewRealty, and on Instagram DrewRealty.