The price for prime residential building lots in the Washington area has sharply escalated in recent months, rising in some areas of Montgomery and Fairfax counties by upwards of 25 percent.
The price increases, fueled by the lowest interest rates in eight years and the dwindling supply of choice land, have pushed the cost of numerous two-acre lots inside and outside the Capital Beltway to between $120,000 and $150,000, with some parcels going for more than $200,000.
An undeveloped, two-acre open meadow lot in outer Great Falls in northern Fairfax County is on the market for $80,000, $15,000 more than for an adjacent, similar-sized lot only two months ago. In Bethesda, a two-acre lot bought by a developer in March for $80,000, is now selling for $120,000, which includes plans for a house on the property. In Potomac and McLean, $250,000 for under two acres is no longer the exception but the norm.
One developer is selling 1 1/2-acre lots west of Potomac that are perched atop huge rock outcroppings overlooking the C&O Canal and the Potomac River for $225,000 apiece, up from the $180,000 price tag before mortgage rates fell.
"Land prices have climbed unbelievably," said Richard Kessler, a real estate agent who specializes in residential land sales for DeRand Realty. "How much further it's going to go up, God only knows."
Kessler said the demand for available lots has become "frantic" in recent months, with builders and individuals seeking the ideal home sites willing to pay previously unheard-of prices. He said the price escalation has spread to the more-distant reaches of the metropolitan area, to such spots as southern Fairfax County near the Prince William County line, where prices for five-acre undeveloped lots have climbed from $53,000 in February to $75,000 today.
Kessler attributed the increased land prices in areas such as Clifton and Fairfax Station to lower interest rates and the westward push of residential development by buyers unable to afford the higher land prices of eastern Fairfax County and Arlington County.
"A lot more people are prepared to be intrepid purchasers" with the low rates, Kessler said.
The increase in land costs also is generating a jump in new home prices in the upscale market, according to several builders, who said the higher home prices are necessary to recoup their land-investment costs.
Miles E. MacIntyre, a local builder and owner of M.A.C.N. Thermal Homes, said his firm can only borrow a certain amount of money each year for land purchases. As a result, "We're becoming more select and are now building fewer homes," he said.
MacIntyre said most builders follow a formula whereby land costs account for about 25 percent of the final package, including lot and house, that a builder sells to a home buyer. For example, a builder generally will construct a $150,000 home on a lot that costs $50,000. But with soaring land prices, MacIntyre said builders now are being forced to construct more expensive homes.
"Instead of building a $350,000, we have to build a $500,000 house," he said.
MacIntyre, a Washington-area builder since 1976 who constructs about 30 houses a year, said that five acres in some sections of Great Falls sold for $100,000 last year. Today, he said two-acre lots in those same sections are selling for $150,000.
He added that with prime land close to Washington becoming hard to find, the price of land is escalating in the outer fringes of the metropolitan area. Today, undeveloped half-acre lots, with no water or sewer connections, located 10 miles west of the Beltway in an area off Rte. 7 in Fairfax County are on the market for $100,000. The lots, close to the Loudoun County line, were only worth about $60,000 a year ago, MacIntyre said.
Christopher Dorment, a local builder and developer, said the recent increases in land prices are "the first really substantial stirring that inflation is creeping back into the economy."
Dorment, president of Rocky Gorge Communities Inc., said that, despite the escalated land prices, lots are being sold briskly at his 200-acre River's Edge development, 10 miles from the Beltway off River Road in Potomac. He has sold all but two of the original 93 lots at the development, where some homes are worth between $400,000 and $700,000. The two sites that remain are the wooded 1 1/2-acre lots that are perched over the canal and river and each costs $225,000.
Closer to Washington, lots are smaller but still costly. In Bethesda, Chevy Chase and Kensington, available lots "are almost nonexistent," said Gwen Swinburne, an agent with Swinburne & Associates, which sells and develops properties and builds homes. She said finished lots with under one-quarter acre of land in Bethesda are now costing between $75,000 and $100,000 -- 6 to 8 percent higher than three months ago.
"Indeed, the biggest price increase in land occurred when interest rates came down," she said, adding that a shortage of available land also has pushed prices higher.
Swinburne's firm is trying to sell a 2.6-acre lot in Norbeck Knolls, a community in near Wheaton off Rte. 28. The $120,000 price tag is $40,000 more than her company paid for the parcel two months ago. The price includes plans and permits for the lot, but Swinburne said she could now get $100,000 for the property without the extras.
S. Ronald Furman of Kraft and Furman, a real estate company that specializes in land sales, said two-acre, undeveloped lots six miles west of the intersection of Falls Road and River Road on the outskirts of Potomac today cost $90,000 to $100,000 -- substantially more than the $60,000 cost for similar land a year ago. Two-acre sites four miles closer to the same intersection in Potomac range between $200,000 to $350,000, he said.
In one case, a builder who purchased 15 acres of land in Bethesda last summer for $1.6 million was recently offered $2.9 million for the property, Furman said.
"The amount of available land is getting smaller by the day," he added. "Land in Montgomery County is at a premium."
Escalating land prices also have touched Prince George's County, although not to the same degree as in Fairfax and Montgomery counties. Land values have jumped dramatically in recent months in Greenbelt, Bowie and Laurel, according to Prince George's real estate agents and developers.
William Chesley, a Lanham real estate broker, said that with the demand for land in the county increasing and the supply and interest rates down, prices have climbed. He said that one-acre lots in the Woodmore development on Enterprise Road in Mitchellville, about seven miles east of the Beltway, now range from $85,000 to $99,000; similar lots last year cost $20,000 less.
Brian Kennedy, executive vice president of the Realtors Land Institute in Chicago, an affiliate of the National Association of Realtors, said Washington land prices traditionally have increased for a variety of factors, mostly because of the region's economic growth.
He added that, while land prices "have gone up sharply" since the fall of interest rates, lower mortgage rates "by themselves won't create increased land prices." He said that other areas of the country, particularly in the Midwest, Southwest and Far West, with the exception of California, are experiencing lower interest rates but no jump in land values.
Local builder MacIntyre said that those looking to buy land and build their own home on the site should act quickly.
"Buy it, build on it and get in the house right away," said MacIntyre, who added that in the past many have purchased land and waited for a few years before building a home on the lot. CAPTION: Picture, Two wooded lots in Potomac overlooking the C&O Canal and Potomac River cost $225,000 apiece. They are the last of 93 sites that are 1 1/2 acres each in the River's Edge development. By Ray Lustig -- The Washington Post