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Housing Recovery Driven By Shortage of Supply in Good Locations

During the housing boom, developers—the companies that pave roads and sidewalks, dig ditches for sewage pipes and power lines and bring in bulldozers to clear space for construction—prepared hundreds of thousands of lots and sold them to home builders, which in turn built subdivisions.

Today many of these lots remain empty. They often are in distant suburbs of cities and still owned by banks, builders or developers. The problem is that they are in places where few home buyers want to live. In fact, builders are running low on land in suburbs that have well-regarded school districts and reasonable commutes to city and job centers…

{Atlanta as example]”A lot of the demand during the boom was speculative demand, not real user demand, and speculative demand was blind to location,” said Brad Hunter, Metrostudy’s chief economist. “Real demand is now concentrated in those core counties.”

Bidding wars are breaking out for lots in prime locations, with some builders developing raw land themselves in Atlanta’s nearer suburbs such as Roswell, Dunwoody and Johns Creek…

“Of all the lots out there, probably 95% of them are unbuildable,” said Patrick Malloy, an Atlanta-area builder. Mr. Malloy said home prices are recovering—but only in the city and nearby suburbs, starting in the established affluent neighborhood of Buckhead and going north.

Much farther outside Atlanta, “the sales prices for homes are less than what the sticks and bricks cost,” Mr. Malloy said.

via Home Builders Need More Land | The Outlook – WSJ.com.

The mainstream media is finally catching up to what I have been harping on for two years. The oversupply and most of the “shadow inventory” is in places that nobody wants. It remains a huge threat to the financial system because it has yet to be written down, but it is no threat to the national housing market.

Of course, there is no national housing market. All real estate is local, and most markets will continue to rebound unevenly from extremely depressed levels. That’s not to say that they’ll get back to their old levels or even close, but up is up. It’s no longer a drag on the economy. The additional activity is accretive, however small.

The caveat is that it can only last for as long as the financial system does not collapse. When that will happen is the big question. Markets seem to be able to continue to function under all kinds of insane stresses for a lot longer than any rational person might expect. Things can muddle through for a very long time. – Lee Adler

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