How the housing market affects the land market

land market

I remember sitting in the 2011 Mossy Oak Properties Land Summit as Edsel Charles, the founder of Market Graphics, a leading real estate market analysis firm, spoke on the housing market and its prognosis for the next 10 years. Charles, whose firm literally hand counts the available housing inventory and housing starts in metro areas, gave a strong forecast for the market in the coming years, calling for several gangbuster years before another correction in the early 2020’s.

So you might ask yourself, “why was an expert on the housing market speaking at a land brokerage conference?” The reason being that the housing market is truly where the flow of money starts in America: As it rises or falls, so does the US economy.

Think about this: What is, from a dollars and cents perspective, the largest investment most Americans will make in their lifetime? It is purchasing or building a home. While someone buying an existing home certainly impacts the economy, housing starts – or new home construction – in particular is a huge catalyst for economic growth. When a house is built from scratch, so many people and industries are positively impacted, from the general contractor on down to the lumber mill that produced the two-by-fours that were used in framing. Housing starts have a huge trickle effect.

However, as we have experienced in the wake of the 2009 recession, housing starts typically trail behind economic recovery. With foreclosed and for-sale homes flooding the market in 2009 and shortly thereafter, housing starts throughout the country having made a sluggish yet positive climb out of the abyss, the market had to clear out of standing structure inventory before new houses could truly return to the market place.

In terms of pure dollars spent to dollars made, the timber industry is undoubtedly the largest benefactor of a vibrant housing market. The primary use of mature pine timber – better known as “saw timber” – is lumber for construction, and lumber mills around the country felt the wrath of the slump in housing starts. For owners, the return on investment of land having merchantable saw timber over that time period was reduced, making timberland a somewhat less desirable investment. However, with the housing market poised to make a strong return over the next five years, demand for saw timber should mirror what was seen in the past and increase the return on investment for timberland owners. Areas close to lumber mills in southern states such as Georgia and North Carolina should be hot areas of investment in the coming years.

Another benefit of a vibrant housing market to the rural land market is the flow of money from metro area developers and builders into purchasing rural land. For example, in the early 2000’s, Georgia’s land market was fueled by money coming out of the Atlanta metro and Florida development sectors. As the recession approached, much of that money dried up, leaving the Georgia land market in a perilous position. Their land market, along with much of the countries, seems to have rebounded as the overall economy has, and with several years of strong economic growth forecasted, the land market could be a huge benefactor.