Why Land Values Are Depressed In Tallahassee

If you look at the housing market in any area, land values are driven by supply and demand of several different commodities.

You first look to the supply and demand dynamic for homes, because if homes are needed, so too is land. You must also look at the market for developed lots, as this will tell you whether or not land is needed for additional growth. And finally, you can look at supply and demand for large parcels to determine if land values are falling, rising, or stable.

Recently, I was asked about land values and what I recommend for people who are holding land they do not want to own.

Reader Questions Expected Trend For Land Values

Long time reader "BB" sent the following question about land values and whether he should get out now or wait:

Hi Joe,  I really enjoy your website and make sure to check it every day... I own 3+ acres in NE Tallahassee. I paid $195K in May of 05. Do you foresee land values beginning to stabilize and subsequently rise over the next year? We ended up building a house elsewhere, therefore I would like to recoup at least part of my investment by selling the 3 acres. Recently, a lot a little over 1 acre, sold for $205,000 just down the street from my property! Should I get out now, or wait? The Fed seems committed to keeping interest rates low for at least another year. Thanks, BB

First of all "BB," thank you for the question. I suspect there are many others in the Tallahassee housing market wondering the same thing, so this makes for a great blog post. Your question was timely because I just updated my real estate graph for land values:

Land Values

The green area shows the average number of lots sold each month, while the brown line shows the average price of each parcel sold. It is clear from this graph that land values are still on the decline, and the total number of lots sold each month is right about 1/2 the rate that we have seen over the past 20 years.

Why Land Values Are Depressed In Tallahassee

It is clear that land values are still depressed in Tallahassee, and it is likely to remain this way for many more years.

Additionally, since our reader question was about a developed lot that would produce a home in the top 1% of our price ranges of homes in Tallahassee, the demand for this type of lot is going to be many more years in the waiting. The following table shows supply and demand for homes from the Tallahassee MLS, and high end homes are still in a glut market.

Inventory of Homes

The relative supply of homes over $500,000 starts at 17 months and goes to 35 months (3 years!), so I would be concerned about the length of "wait time" if I held onto a property such as this, knowing the pricing pressure that exists for land values.

Land values are depressed in Tallahassee because we have more homes that we currently need, thus we do not need land to build more homes. The new construction market is at an all-time low, and it is catering to a small niche of people willing to pay a premium for a brand new home.

What To Do With Land Holdings

The best advice for "BB" or any other land holder is to do a financial analysis comparing a "sale now," with a hold and "sell later." This means an in-depth study of supply and demand for land values in your location. If you are the last developed lot in a subdivision, you will be in a better situation than if you are just one of many remaining.

For our readers who have land that they plan to build on one day, this advice might not apply.

If you own land, there are costs associated with owning that land, and there are opportunity costs associated with having your money tied up in that land. The current decline in land values should make you reassess your situation, even if you end up making a decision to continue holding.

*Joe Manausa Real Estate is a brokerage company headquartered in Tallahassee, Florida. Its unique business model provides specialists to both home sellers and home buyers, and the results speak for themselves. JMRE has significantly more 5-star reviews on google than any other local competitor. Joe Manausa Real Estate is a leader in internet marketing and utilizes search engine optimization, email marketing, social media and data analytics to get their clients’ home sold faster and for more money than any other Tallahassee brokerage firm. For more information, visit www.manausa.com or call us at (850) 366-8917.

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