Oh no, not in my neighborhood! Some developer wants to build new homes down the street from my house, and it will wreck my beautiful view – and what about all that traffic?
This cry is being repeated all over the USA these days. How dare anyone build a house near where I live, is the battle cry we often here these days.
The result is rising prices for raw land.
I live out in the sticks, and when my family and I moved to this (most) beautiful area of the Ozarks in 1993, raw land was still being sold as “acreage,” and went for about $1,500 an acre.
Fast-forward eight years later and they are now called “lots.” Prices have skyrocketed to as high as $20,000 to 25,000 an acre for the same land that was going for $1,500 back in 1993.
Forget the stock market; I should have been buying the raw land around me!
In fact, one the biggest things keeping me from thinking we are in a recession right now is the strong market for single-family homes.
Sure, some of the very, very high-end stuff is soft because of the recent stock market decline, but the new-housing sales are still very strong across the board.
Consider one large homebuilder, Lennar (NYSE: LEN). While the stock market had been slipping and sliding, LEN has been making new highs this year.
And Lennar is not the only one. William Lyons (NYSE: WLS), Beazer (NYSE: BZH) and Newhall Land & Mining (NYSE: NHL) among others have been one of the very few sectors that have been making their shareholders smile this year.
Lennar recently said business is as strong as ever, and new homebuilding inventories are at a very low-level of four months.
The flow of funds to the stock market has slowed down and some of that money is dripping over into the residential real estate market.
The fact is, whether we are Democrats, Republicans, Protestants, Catholics, or whatever, the urge to own our own home is as strong as ever and attractive financing is available.
Combine that with the not-in-my-neighborhood mentality, and you will see a very tight land market, especially for large tracts of raw land.
The biggest problem builders face these days is finding large tracts of land they can build on without facing long time-delays fighting whatever particular group wants to keep them out. Also cumbersome are numerous local regulations that stretch out building projects.
Lately the land stocks have also been performing very well in a very weak market.
One land stock I featured in my March 30th column, St. Joe Corp (NYSE: JOE) has moved up from $23 to $27 since then. To my thinking, JOE is still in a very good buy area below the $28 area, and the chart looks very strong.
Tejon Ranch (NYSE: TRC) owns 270,000 acres of raw land that is just north of Los Angeles. For those of you who know the area, this huge tract of land is located north of the “grapevine” area as you head north and leave the San Fernando Valley on Interstate 5. This huge tract runs all the way to the southern edge of Bakersfield.
In the past 50 years the land rush in L.A. has been mostly south and east of L.A. In the next 10 years the area north of L.A. should see impressive growth.
Alico (Nasdaq: ALCO) is another similar land company that owns about 140,000 acres of land in southern Florida. ALCO has been on a real tear of late, running from the $16 area in April to $30 just recently. One thing that may be causing Alico to rally is that the Griffin family, (that owns a lot of Alico stock) seems to be in some turmoil and there are rumors this company may be for sale.
I believe buying land stocks is a better way to speculate in raw land than actually buying raw land yourself.
First of all, you avoid all the problems, payments, taxes etc. involved in actually owning raw land. Best of all, you have instant liquidity in that you can buy and sell your land stock anytime you desire.
These stocks are deeply cyclical, and spend most of the time doing nothing. Then in a one to three year period they will have a quick “whoosh” up (and that’s a good time to sell). We may just be entering such a period right now. My personal favorite right now of these 3 would be Tejon Ranch, below the $30 area. I see big upsides here, but remember, these stocks are not for widows and orphans, and I cannot guarantee anything. You need to do your homework before you buy these stocks – and it might be worth your time to do just that!
