First Quarter of 2024, Des Moines Metro Lot Analysis
I have the privilege of graduating from Lead DSM later this week. Lead DSM is a not-for-profit organization that brings together a class of approximately 40 leaders from around the metro. Through the program, students get to tour different segments of the metro and get a feel of how our community is run. My two favorite topics to learn about were Des Moines Water Works and the Des Moines International Airport.
More importantly, I’ll be graduating with 39 people that I can now call friends. Having spent my entire career in real estate, an “eat what you kill”, “survival of the fittest” industry, it’s because of Lead DSM that I’ve learned that there are in fact leadership qualities outside of ambition and relentlessness that can push a group forward. It’s traits like compassion, empathy, and vulnerability that before now, I’ve never really associated with leadership, but I’ve learned that it’s the authenticity of traits such as those that people are drawn to and can rally around. As one might assume, the people I ended up having the most respect for through my Lead DSM experience approach life and business with these traits and they manage to get things done at a high level on a daily basis.
As I’ve stated in previous articles, there are many aspects of land development and new construction that are simply out of the control of developers and builders. In today’s world, the best example of this is interest rates. The real estate community has been anticipating rate cuts starting in June of this year, but with recent inflation numbers, a June cut seems less and less likely. I can say this with firsthand knowledge, it is extremely difficult to get land development deals to “pencil-out” where rates currently sit. So rather than try and force a deal, many developers decide to wait and not proceed with the project.
With that said, not all is “doom and gloom”. First Quarter 2024 lot sales are up from a year ago. It’s not by much and pales in comparison to the boom times of 2021 and 2022, but it’s a move in the right direction when compared to the First Quarter of 2023.
First Quarter 2024 building permits (single family and townhomes) are up as well when compared to the First Quarter of 2023. Many builders have been able to sell through some of their excess new construction inventory that built up when rates started to increase, and so the trajectory of new construction permits is starting to increase.
First Quarter new construction sales have also ticked-up when compared to the First Quarter of 2023. The builders and developers have been trying to provide more affordable product for consumers to counter-attack interest rates, and they have been rewarded for this with more sales when compared to a year ago.
Finally, the number of vacant lots have depleted since a year ago. I believe that this is due to what I said earlier in the article where it is difficult to get new development projects to “pencil-out”. That leads to fewer lots coming to market, which could put a squeeze on new construction housing six, twelve, twenty-four months from now. I have said it numerous times in previous articles that a healthy lot market has about a 30-month supply in “normal” market conditions. Factoring in the average annual number of townhome and single family new construction building permits over the last five years (3,815 permits), you can do some simple math: 3,815 permits/12 months = 318 permits/month. 318 permits x 30 months = 9,540 lots. Sitting at 6,598 lots market-wide, we’re about 30% under-developed.
Lead DSM… what a great experience the last eight months have been! I freely admit it, I get siloed in my line of work. I assume everybody approaches business just like real estate people do. However, I’ve learned that there is a place for compassion, empathy, and vulnerability and I want to use those leadership skills when I can.
In closing, I’d mention that while nearly across the board, the stats shown in the graphs accompanying this article, from a market perspective, are nearly all positive. It is also worth mentioning that of the new construction sales that occurred in the First Quarter of 2024, 31% were sales from national builders. To take that a step further, of the new construction permits pulled in the First Quarter of 2024, approximately 40% were home-starts by national builders. Until about five years ago, these national builders weren’t active in this market, and their gained market share, has been taken from somewhere, which is almost certainly causing some pain out there, and for that, I am truly empathetic.
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.