Land Prices in US Gain on Real Estate Recovery

Posted by Rapti Gupta on Apr 10, 2013 08:55 AM EDT
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Land Value in U.S.more big
Prices of vacant lots and empty land pieces have been rising in the U.S. since the real estate market and the economy have taken the road to recovery. This trend is proving to be profitable for sellers and expensive for consumers. (Photo : Christopher Schirner / Flickr)

Land prices have shot up in the U.S. with the real estate market and the economy's road to recovery.

According to a March estimate by Zelman and Associates, a real estate consultancy, land prices rose 13 percent across America in 2012. This is the first and the highest annual gain since 2005. The tremendous price rise can be attributed to the increased demand for empty parcels. More number of builders is now looking for vacant lands to establish infrastructure.

Additionally, the inventory and supply of available finished lots has remained relatively less. This is also another reason for the prices of these lands shooting up.

"There's no question the land market has gotten heated of late," said Richard Dugas, chief executive of PulteGroup Inc., to the Wall Street Journal in a recent earnings conference call.

"In some markets it's a real challenge to get land deals to pencil," he added.

With the declining supply rates of urban land, country and agricultural land are now gaining in demand as well. In Napa, just an acre of vineyard land sells from $50,000 to $300,000 depending on the location and terroir. Prices have been holding steady in the county since 2012, making its agricultural lands the most expensive in America, reports The Napa Valley Register.

More than half of the home's price includes the price of the land. According to a Corelogic report, home prices gained 10.2 percent on a year-on-year basis in February 2013. This is the largest spike in the past five years.

While sellers are waiting for home prices to reach a maximum upper limit before selling, buyers are also taking advantage of the low interest rates and making the most of the resurgent property market. The number of improving housing markets in the country also remained steady in April.

The accelerating prices are raising concerns among analysts. Following the concerns, some investors have been cooling on the housing market.

Apparently, rising home prices are putting potential investors on their guard.

"Investors have been very active in the market over the past two years, attracted mostly by discounted foreclosures that could be quickly turned into profitable rentals," Lawrence Yun, chief economist for the National Association of Realtors, said in a statement.

"With rising prices and limited inventory, notably in the low price ranges, investors are likely to step back in coming years," he added.

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