The Black Swan’s Effect on Land and Housing

Here is what we are seeing and what we expect to see in the coming months in regards to land and lots


The land and housing market is slow to adjust to exogenous shocks like we have seen in the past few months. Homebuilder stocks reflected an immediate adjustment to .5 to .8 of book value. These valuations are reflective of 2009-2011 valuations, two completely different economic scenarios that both resulted in halving of valuations. The current economic metrics of land and housing are completely different to that of the last housing-led downturn.

As we entered March, everyone was set up for the best year in land and housing since mid-2005. However, the economic conditions are radically different than 2005. The top of the last cycle was fraught with oversupplies of everything, and 2020 is fraught with chronic shortages. In 2005, builders, developers, and homebuyers were also oversupplied with another ingredient: money. Earlier, 2020 seemed “just right” on availability of capital for land and housing. Currently there is not a shortage of overall capital, but there is a near term withdrawal of available capital for land and housing.

All real estate cycles I have witnessed go through building, over building, adjustment, and acquisition. What we have now entered in most US markets is entirely unique. We will jump from building to adjustment, skipping the over building phase of the cycle. Only certain markets will see effects of supply increases from loss of demand, rather than facing an already overbuilt supply compounded with lack of demand. As demand resumes in most markets across the US, we will see this adjustment period become/remain quite short.

Land Advisors Organization has a unique gauge on the land and lot markets. We have hundreds of land and lot escrows across the US. We know the direction of the market based on the volume and performance of these transactions in dozens of growth markets across the US. Here’s what we are seeing and expect to see as of the second week of May and several months into COVID-19 AKA Black Swan 2020:

  1. Extensions to escrows requiring near term performance, such as a non-refundable date or closing date. Virtually all sellers have accommodated the first request for 30-60 days. Second requests are being entertained now, and most sellers are accommodating. When the third requests begin, we believe the courtesy extensions will be less accommodative, forcing decisions on any adjustment or termination.
  2. In June/July, we will be entering a phase of renegotiation on terms and pricing that will last into the first quarter 2021. As the market begins to thaw, sellers will have an alternative to the courtesy extension or succumbing to price adjustments, as opposed to today when few alternatives to exist.

  3. Land and lot prices have seen zero volatility to date except the pummeling in the public markets cited above. We expect certain markets to see erosion in price, as clarity is gained and the region’s time to recovery is debated and judged.

  4. We fully expect the rapid unrelenting horizontal development cost increases to wane, and even substantially retreat. While there is no empirical evidence today, there is logic to lower labor and material costs to come. Lower vertical costs also directly relate to what a builder can pay for a finished lot.

  5. Lot bankers have currently retreated due to obvious concerns that a 10-15% deposit is not enough buffer to potential whipsawing of lot prices, if the markets do not stabilize and improve. Lot bankers have also temporarily lost the leverage which makes the risk adjusted returns worth the while.

  6. Builders have not begun, nor will they want to start, impairments of any of their current supply. We do not expect they will need to in most markets.

  7. Builders, developers and lenders have tapped the brakes, leading to a continuation of the undersupply in land, lots and housing. This will keep prices from retreating much in this adjustment portion of the current cycle.

With housing, land, and lot supplies extremely short and historically low interest rates likely lowering horizontal and vertical costs, we should see this exogenous shock having lessened impact than any previous down cycle. 

One thing is for sure. We do not have to answer what inning or even extra inning we’re in. We’re beginning inning one. Perverse as
it is, most great wealth is created from rising from a bottom rather than investing at the top of the crest.

Those of you who know me well, know that collecting, recommending, and gifting books is ingrained in me. I cannot suggest enough that everyone read and require their teams to read “Think and Grow Rich,” written by Napoleon Hill in 1937, coming out of the Great Depression. My most recent favorite audio book is “You Can’t Hurt Me,” an amazing testimony to commitment and fortitude.

As we move through this adjustment—be wise. Be agile. Be brave. Be creative. Be confident. Be nice. Let us mark the beginning of good things to come.

Greg Vogel is the Founder and CEO of Land Advisors Organization. He may be reached at

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