Home pricing in many areas is all about the dirt

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Published Date 7/2/2019

You walk into a model home of a builder who sells homes elsewhere in your vicinity, but with a different community name slapped on it, and perhaps some amenities are not precisely the same. But you look at the price sheet and notice that the prices for the same floor plans are $50k more than the other area you looked at. What? Is this a ripoff? Is it because this considered a more desirable place to live? The respective answers are no and yes, but that’s not all that comprises this equation.

Redfin’s Sheharyar Bokhari recently reported on how land prices are the main culprit in home prices in a given area, not necessarily demand — even though demand does play a big role in how much land costs. The article goes on to say that in the San Francisco Bay Area, Los Angeles and Boston, the value of land accounts for more than half of a typical home’s value, while that same share is only 20% in cities like Buffalo, Indianapolis, and Cincinnati. So yes. If moving from elsewhere to those pricier areas, you WILL suffer from sticker shock.

It is reported that housing demand has outpaced housing supply for quite a while now, leading to a 52 percent increase in national home prices between 2012 and 2019. “Over this period 8.4 million new households formed in the US., but just 6.8 million new housing units were created, resulting in a shortage of about 1.6 million homes,” says Bokhari. He adds that the cost of acquiring developable land is a major reason why housing supply has trailed demand. Coastal markets have the highest share of land costs built into sales prices, but other factors not include increases in the cost of building materials, permits and labor costs.

Median sales price samplings, according to Redfin are as follows: Los Angeles: $625K, San Jose: $1.175K, San Francisco: $1.5K, Boston: $517K, New York City: $385K, Providence, RI: $295K, Boulder, CO: $530K, Washington D.C.: $423K, and Seattle: $593K.

Source: Redfin, TBWS

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