4th Quarter of 2023, Des Moines Metro Lot Analysis
My wife, Staci, has a birthday on January 28th. Each year, around this time, we try to do a trip together, just the two of us. I have to admit, we’ve done some pretty cool vacations, including Paris, Southern California, Naples, New York, London, Scottsdale, and Napa Valley, just to name a few.
This year is a little bit different. We’ve opted for the infamous, “staycation”, or “holistay” if you prefer. It’s not all bad. It will save us time and expense on travel. It will also give us an opportunity to check out some places around town that a couple with four little girls can’t normally attend.
Personally, I’m looking forward to staying at the newly-renovated Hotel Fort Des Moines, and eating dinner at what I’m hoping will be my new favorite restaurant, Oak Park. I think we’ll have a good time. The city is our oyster!
Outside of it being Staci’s birthday, I like this time of year because it gives me the opportunity to look back at not only the previous quarter, but year as a whole, and see how the 2023 lot and new construction market performed compared to previous years (lot data is taken from public record and not the local MLS as public record is the most accurate form of information available).
First are fourth quarter lot sales from 2021, 2022, and 2023. It should be noted that fourth quarter of 2021 was a tremendous quarter for lot sales. Fourth quarter 2022 lot sales fell off significantly from the year prior. However, lot sales in the fourth quarter of 2023 grew nearly 89% from 2022’s fourth quarter lot sales.
This tells me that builders, like the rest of the market and economy as a whole, are expecting interest rates to come down, which will hopefully lead to more buyers in the market. In order to build houses to meet market demand, builders need lots to build on, hence why fourth quarter lot sales is a good indicator as to what kind of spring builders are planning for.
Annual lot sales, year-over-year, were down when compared to 2022 by about 14% and down nearly 40% when compared to 2021. This is likely due to a number of factors.
First, builders are still building on lots that they closed in 2020 and 2021. Next, the lot supply has tightened with fewer new plats coming to market, so there aren’t as many lots available to sell.
Finally, many of the lots that are available were developed at the top of the market, where the lots that were developed were larger and more expensive, when today, much of what is generating sales in new construction homes, is affordability, which require smaller and more affordable lots.
There was, however, an increase in new construction home sales when comparing fourth quarter, year-over-year sales in 2022 and 2023. It was a modest increase, but still an increase!
Finally, consider new construction townhome and single-family building permits in 2023 when compared to the previous five years. For the last two years, from a “new construction permits” perspective, the market is very near 2019, a solid year. The “COVID years” of 2020 and 2021 were outliers from a historical sense.
It’s worth noting that of the combined 3,516 new construction townhome and single family permits pulled in 2023 that approximately 1/3rd of the permits pulled were for townhomes, which is the highest percentage I’ve seen since I’ve been tracking new construction permits (2010). The increase in townhome permits is likely the result of builders trying to offer affordability to the market through density and private infrastructure of which both are factors of townhome development.
I’ve been “bearish” on the Des Moines metro’s lot and new construction market since February of 2022. Things just haven’t added up to me. Yet as of right now, in January of 2024, I’m feeling confident in the market moving forward.
I am confident that interest rates will come down, which should spur more activity in the market. I believe that as far as townhome and single family new construction building permits go, 2024 will beat 2022 and 2023.
In closing, with that optimism, some “food for thought”. One indicator that housing economists have been discussing as of late is the “New, Finished, Unoccupied Property Percentage”, or “NFU” for short. It measures what percentage of the housing stock in a given market is finished, new construction housing that is not yet occupied by a buyer.
According to the measures, an NFU percentage of less than 24% means that the given market is “underbuilt” in regards to demand. An NFU of 24% to 28% is ideal, or equilibrium. An NFU of 28% to 32% means “overbuilt” in regards to demand. Then the “Danger Zone” is an NFU of greater than 32%. If NFU is greater than 32% for eight months or longer, it means that the housing market is in a recession.
As of 1/18/2024, the Des Moines metro’s NFU was at 33.7%. I’m hopeful that the NFU will come down with a busy spring selling season, or maybe some of those finished, unoccupied, new construction homes becoming rentals.
The indicators are all over the place, but like I said, my gut is telling me to feel confident for a good 2024 in the metro’s lot and new construction market. I guess some of that confidence could be the excitement of my “staycation” that is coming up.
Since in my line of work, I ride the “highs and lows” of the lot market, maybe a good indicator of where the lot and new construction market are at is “Where are Nathan and Staci Drew vacationing this year?” It might be the most accurate indicator of all.
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.