Higher Lot Prices Boost New Home Prices

New homes could get more expensive in the coming months as a shortage of suitable lots are driving up builders' costs.  In 27 leading markets, the average price of a finished lot ready for building was up 40 percent in the second quarter from a year ago, according to John Burns Real Estate Consulting.  Even steeper increases have hit some markets that have also seen strong gains in home values and demand.  Year over year, finished lot values were up 87 percent in San Francisco and Oakland, 75 percent in Atlanta and 70 percent in Las Vegas.

The big jumps are "making up for lost ground" during the housing downturn when lot prices fell, says David Crowe, chief economist for the National Association of Home Builders.  The higher lot prices may foreshadow higher home prices months from now. Finished lot prices represent almost 22 percent of a new home's price, Crowe says. Builders expect future home prices will cover their higher lot costs.  

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