New Construction

So far this year, on average, spec new construction sold at a 15% discount to original list price.

There were no sales of new con on half-acre+ lots. But three sold in 2020, and one is currently pending. A few spec homes were converted to custom construction.

Active on MLS: 7
Pending: 7
Sold in 2021: 9
In the pipeline: 12

It was rare to see a spec house go into contract while still under construction. If builders were candid, they would tell you that these houses sat around much longer than expected. There were some sad faces. Price discovery was a problem as became evident by the discount to original list price (average 15%, but often significantly higher).

Some of the current pending lot sales to developers at extremely high prices indicate that there is going to be some tricky math ahead for them. It helps that so much undiscriminating outside investor money is pouring in.

Large Premium Lot Sales

The graph below focuses on large lots in premium locations. While the first half of 2021 saw two purchases of this type of lot by spec builders, this is typically the domain of very wealthy end users. That accounts for the wide range of pricing at any time. When an affluent end-user wants it, they will pay for it. Location is everything.

We saw an unusual cluster of sales in 2019, split evenly between spec builders and end users, and another cluster in the first half of 2021. The sale of our listing at 3723 Knollwood in May has set the new high-price record for a large lot at $182 per sq ft.

Small Premium Lot Sales

It doesn’t seem so long ago that prices for small lots in premium locations in River Oaks broke through the $100 per square foot barrier. In fact, it was early 2006 and that breakthrough left us breathless. Another time and place altogether.

But if we were ever going to crash past Mach-2 it would have to be early 2021.

Just to be clear, there have occasionally been instances of neighbors paying a small fortune to make spec builders go away rather than allow them to build a monstrosity on the other side of the fence. We have left those prices out of the graph below in order to make it more instructive.

In March of 2021 two speculative builders paid in excess of the “2” number (we’re still having trouble verbalizing that magnitude) for smallish lots on the margins of what is considered a premium location. Two more such transactions are pending in that range at the time of this writing.

Let’s face it, if you are going to pay more than $200 per square foot for land in a speculative venture, you’d better know what you’re doing, even if it is with someone else’s money.

Ironically, it was the private end-user who showed the most restraint and discipline in their purchases of this category of River Oaks real estate so far in 2021. The others seem to be in the late stages of a game of hot potato.

A glance at the graph below makes it clear that the price of premium lots does not move in the distinctly upward trajectory of, say, a space rocket. More like the topsy-turvy maneuver of a vintage biplane.

So, to answer a recent question from a River Oaks client: River Oaks premium lot prices have always increased over time, in aggregate. That is not the same as saying that if you pay too much you can nevertheless expect to profit any time soon.