Meck homebuilding on big upswing in 2013, but lot supply shrinks

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CHARLOTTE — It’s not a buyer’s market or a seller’s market. It’s a builder’s market, and the numbers are there to prove it in the Mecklenburg County building-permit records.

Homebuilders started 250 new single-family homes in the county in January, up 52 percent from the 164 similar permits issued in the first month of 2012 — which was the strongest year for homebuilding in the county since 2008.

And the value of those homes rose a whopping 75 percent in the same January-over-January comparison of permits, to $41.7 million from $23.8 million.

If last month’s homebuilding rate keeps up, there could be more than 4,100 new homes in the county by the end of the year, a huge jump over 2012’s 2,752 — and beginning to approach 2007’s 5,976.

Homebuilding is on fire. But — and this is a pretty big “but” — the conflagration puts builders in danger of burning through already-short inventories of developed lots.

Which means it might soon be a developer’s market.

First, though, Alan Banks, president of the Home Builders Association of Charlotte, wants to celebrate the January permit figures.

“Wow. Really? That’s great news,” he said.

The figures suggest the county’s homebuilding market is turning around for various reasons, including a grudgingly improving economy and steadily improving job market, a decline in inventories of existing homes and an increase in the availability of homebuilder loans and mortgages.

Banks, co-owner of Evans Coghill Homes, said market forces are right for homebuilding to accelerate even more.

“New-home sales are way up, so much so that we’re selling off our inventories, which are still historically below accepted equilibrium levels,” Banks said. “We’ve now got the financing, the demand and the capacity to grow. By capacity, I mean a company is able financially to expand to meet the additional demand.”

But — here’s that big “but” again — there’s a splinter in the two-by-fours to watch out for: “The lot situation,” Banks said, “is getting desperate.”

Many builders still have enough Class A lots in desirable neighborhoods to handle immediate demand. But at an accelerated rate of building, builders build out their lots before developers can get more of them online. The resulting shortage eventually could hold builders back.

The Charlotte office of Metrostudy, a Houston-based housing analytics firm, reports that Class A lots in the Charlotte market are down to a 22-month supply. That’s far below the desired equilibrium level of 28 to 32 months, a level based on how long it typically takes developers to turn raw land into buildable lots.

And, said Metrostudy’s Charlotte director, Bill Miley, those lots are all owned or optioned by builders. That means, for all practical purposes, there already are no available Class A lots for sale in the area. That, in turn, is why big production builders, such as M/I Homes, say they are putting much of their 2013 efforts into developing new subdivisions, many of them in neighboring counties that touch Charlotte city limits.

“We’re not going to hit that wall for months yet; we don’t really know when,” Banks said. “But it’s out there. Our inventory of lots is diminishing faster and faster as we build more and more. Eventually it’s going to slow us down.”

Banks had a metaphor for it: breakfast food.

“It takes two years or more to develop land, so imagine going to the grocery store and looking for a box of cereal and they say, ‘Come back in two years,’” he said. “If you don’t happen to have a two-year supply of cereal at home, you’re in trouble.”

Especially now that builders are eating lots for breakfast, lunch and dinner.