Everywhere I look from California to Florida, you can now buy a house for less than you can build that house for, even when you value the land the house is sitting on at zero.

Yet, I see "spec" land for sale everywhere.

Who the F (except for the very rich)is going to buy a piece of land to build a house on when you can buy a completely finished home for less than the cost of constructing a new one?

How low will land prices drop from here is anyone's guess, but I bet the bottom will be far lower than anyone currently believes.

Residential is bad but home builders are building smaller homes now so it has some value.
The horror show is in vacant commercial and industrial.

Vacant commercial and industrial land, according to the appraisals I have done in suburban Chicago areas, runs about 33% of bubble price. You may find some speculative buyers at that price. I have been doing some high vacancy strip centers and have come in at that same % haircut too!

Kel - since I intend on building my own house, and I don't want to be living in a neighborhood full of sec8 leeches - I'll take the 'extra' costs.

This is my dilemma. We just sold our home and will close in a few weeks. We will have about $175k, coming out of the sale, but that isn't enough to buy a single family home in my area. Even the foreclosures in the worst shape are selling around $200k. So, we will be living with family for the next year or so, saving maybe $1k per month. Hubby is unemployed right now, but if he finds work, we will save a lot more. We've thought about buying land and putting up a modular home. I know that will cost more than picking up a foreclosure. But we would have a new home built correctly. If we get a foreclosure, it will be in crappy shape. I'm wondering if the money it takes to fix up a foreclosure will be the same, more or less than paying the upfront costs in building a small and reasonably appointed (e.g., nothing fancy) modular.

I also wonder what will happen over the course of the next year. How much farther will prices drop? Will land prices drop on the same trajectory as finished homes? Will modular home prices deflate at all? One thing is for sure. We won't be making any moves for a while. Our money will be parked somewhere safe (if there is such a thing these days!) and we will wait and see. I really don't like having my money exposed, though, and am not looking forward to being essentially homeless. Thank God for my generous and sweet mom and dad and their too big house!

Tasha, there are costs associated with preparing the land for a modular home so you need to factor that into the equation.
As for how much farther prices will drop, I think that prices will do a slow bleed down over the next seven or so years.

For your savings, I'd drop it into a one year CD. And I'd go with the highest interest rate, since you'd be fully insured by the FDIC. If the FDIC stopped paying insurance, there would be bigger issues than recovering your money.

If you buy vacant land be sure your not in a HOA.