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California vs. Other States
GENERIC EXAMPLE FOR A TRADITIONAL 5,100 sqft HOME ON A 1 ACRE LOT
Absortion Rate
(Days on Market)
The most attractive metric for a builder in California is speed. While in other states a new property over $1 million can take six months or more to sell, in California the average is usually under 30 days (and less than 60 days for existing homes).
The Value of Time (Opportunity Cost)
Waiting Lists
Due to a lack of inventory, many developers sell units "off-plan" (pre-sale). This means that market risk is almost nil: the house is already sold before the last nail is driven.
Lower Inventory Risk
In markets with low demand, the builder must pay for maintenance, insurance, and loan interest while the house awaits a buyer. In California, turnover is so rapid that capital is freed up almost immediately for the next project.