This is simply not so. Major home builders are really nothing more than land developers. It takes a number of years to move a large rural ungraded parcel through environmental, planning, grading, street improvement, etc and into finished lots ready for homes. Builders vie with each other to purchase large parcels to give them the land they need to have in their inventory pipeline to sustain their needs for years and also to keep land (and thus market share) away from their competitors in any given market. In their yearly reports they speak in terms like âsignificant land controlâ to describe competitive holdings. The building of homes is very much secondary to land development and serves historically mostly as a way to sell the small finished lot as Joe and Jill Average want a home for their family, not a small finished city lot. More recently home builders have discovered through "add-ons" like granite, up scale carpeting, stonework, insurance, etc they can increase their margins, but namely they are real estate land developers. The price of the finished lot determines builder profit. In interviews the company officers will speak in terms like "community" and "amenities", but this makes no matter. Behind closed doors they talk about land and zoning. http://realtytimes.com/rtcpages/20040303_bigbuilder.htm "Beazer, which is now active in 19 states, has boosted its land holdings significantly in the last 10 years. In 1994, the company, then the 12th largest in the country in terms of sales, controlled almost 11,000 lots, either as the direct owner or through options. That was enough to last nearly three years. But by the end of 2003, it had nearly 80,000 lots at its disposal, more than sufficient to keep the home building operation humming for a good five years at its current sales pace. And Beazer is not alone, according to a recent study by Credit Suisse First Boston, which found that the nation's 13 largest building firms increased their investments in land by 22 percent between 2002 and 2003 and will boost their land holdings by 15 percent more this year. "All of us are building (landing inventories) for the future," McCarthy said. "We're all taking large positions in land." http://www.nvland.com/news.htm $557 million bid lands 1,940 acres Consortium of seven home builders buys Henderson property John Ritter smiles after his Focus Property Group's bid of $557 million for 1,940 acres in Henderson is accepted at Wednesday's Bureau of Land Management public auction. A 1,940-acre block of land in Henderson that didn't sell for the minimum appraised value of $250 million in November was purchased Wednesday by Focus Property Group for more than twice that amount at the Bureau of Land Management public auction. Focus paid $557 million, or $287,113 an acre, for the land between Interstate 15 and the master-planned Anthem community in west Henderson. "I think the price we paid for the property was reasonable, given the current market conditions," said John Ritter, chief executive officer of Las Vegas-based Focus. In all, the BLM sold 71 parcels totaling 2,532 acres for $707.2 million, also more than twice the appraised value of $309.8 million. Some smaller parcels went for three and four times the minimum bid. It was the largest BLM sale since the Southern Nevada Public Lands Management Act was passed in 1998, in terms of the total amount and price per acre ($279,299), said Judy Fry, BLM land sales leader. Developers had balked on the Henderson piece in November because of the city's "inclusion zoning" that required a percentage of homes to be sold at less than fair market value. Those encumbrances were lifted by the city. But the cost of infrastructure has been estimated at $226 million, and some land must be dedicated to public uses such as schools, police and fire stations and parks. "A lot has happened in the last six months," Merv Boyd, assistant field manager of land sales and acquisitions for the BLM, said in reference to escalating land prices in Las Vegas Valley. Ritter said the Henderson land would be developed into a master-planned community with a 10-year buildout. He would not guess the price or number of homes to be built. "I think anybody in our industry has concerns about housing prices," Ritter said. "This is a big price. I didn't think it would get that high. They brought us right up to our threshold." The bidding between Focus and Pulte-Del Webb, developer of the 5,000-acre Anthem community, opened at a slow pace to reach $300 million, then jumped to $400 million and $500 million as those who stayed for the finale shook their heads in amazement. Backed by seven major home builders, Ritter upped the bid $1 million to $5 million at a time. Pulte's team, led by area President Sheryl Palmer and Vice President of Finance Scott Middleton, came back with increases in $100,000 increments. "Certainly we would have loved to be the successful bidder; but at a certain point, we felt we had to protect the quality and value of homes for our buyers," Palmer said. "We came in at certain expectations of where the price should be, and that's where we stopped." Ritter is a "skilled tactician" and knows exactly where he can go with his bidding, said Mark Bouchard, managing director of CB Richard Ellis. He was among about 1,000 people at the high-energy auction at Sam's Town Live events center, including a record 460 registered bidders. "You'd think after doing a few of these, you'd get used to it; but it's nerve-racking," Ritter said. "When we were going $100,000 a pop, I thought we'd be here until 3 or 4 in the afternoon. It's American capitalism at its finest." Mark Morse, field manager for the BLM in Las Vegas, said the appraisal on the Henderson parcel was more than a year old. But the other 70 parcels were fresh appraisals, and they too more than doubled in price, illustrating how much land values have appreciated in a year. "I think the market has changed dramatically," Palmer said. "Appreciation has been at a much higher pace over the last seven or eight months. People are still bullish on the marketplace." Ritter said his plate was full in November with the development of Mountain's Edge in the southwest valley and Cliff's Edge, now called Providence, in the northwest. Focus bought 992 acres in another highly competitive BLM auction in November 2002 for Mountain's Edge and 485 acres in June 2003 for Providence. This time, he came with a consortium of home builders: KB Home, Toll Brothers, Woodside, Pardee, Beazer, Kimball Hill and Meritage. The land will be divided among those builders. Ritter said it will take at least 18 months to build the infrastructure, estimating the first model homes will be ready in late 2006 The next BLM auction, which includes 4,000 acres in North Las Vegas and Kyle Canyon, is scheduled for January, after environmental reports are completed.
Blue, I'm not short KBH. In fact, I'm short TOL because of the next two groups of option strikes. I'm trying to go and flow with the specialist. Got to make the rigging you're friend. Builders are putting out great numbers. Plus they are accumulating their own financing. Kind of like an executive that is getting top pay, but knows he-she will be laid off in the fairly near future (but isn't sure of the exact timing). So share price is so much a matter of public perception. By the way, the Builder mentioned above is Peter Keating. Good Catholic, rotten person.?? I heard some new news on KBH on another site. The fine could be mucho large. It's going to depend on who they know where, I guess. I can hardly believe the numbers posted. I think that is why KBH is so low on the performance charts. First the chart, then the news? The deal on CTX is very quiet. No rumors. HD fines should be minor, like Wal-Mart. JNN.V-IUC.T have hit good Uranium numbers in elephant country. And someone said oil is getting expensive. chow
OldTrader, (like me, old?). You sound knowledgable. Do what works for you. CA is a world unto itself. Especially the coastal stuff. I grew up there. On the hearing news: You don't really think you'll hear any news like that do you? Think about that. I'm a Builder. I come out and say inventory is going to be up, sales will stay good as long as we can sell bonds to suckers. You know what I mean, they can't say those things. The top would have happened before, but the FED dropped rates and messed up the process. Now the bubble is bigger. We had no rush hour in the 70s and 80s. Everyone left. No renters. RE prices have dropped 75%. I've bought it. But I'm older and remember. Bye
...even as rates have stayed low, the RE mkt has slowed down a bit ...i think unlimately if rates ever actually do go up, we'll see a quick slowdown. funny thing is that no one actually connects rates with housing - everyone thinks "it couldn't go down here or there because of XYZ...". DC, NY, FL. As rates went down, prices flew up....if they turn and go up, home prices will go down...quite a simple concept. no one thinks home prices exploded cause of rates crashing...and now no one thinks it'll go down much cause of rates...we'll see.
Unlike the equity markets however, where declines generally occur much faster than advances, real estate declines generally drag on and on, while appreciation can be explosive, as we've recently seen.
With all due respect, you have it backwards. Homebuilders develop land in order for them to assure themselves the absolute one thing they can not live without!! LOTS. All of the items mentioned were land purchases in order to have developed lots at some point in the future. Just like Exxon drilling a new well now for the future feed stock of oil for their refinery. In any interview with homebuilder executives they all state the same problem. Running out of lots. The time it takes to bring raw dirt to a buildable lot is very long in some areas and not so long in others. Homebuilders have become developers in order to control the development and, most of all, they desperately need the lots. They cannot afford to wait for the more tradional land developer to sell them some lots. Their demand is so strong they will take all of the lots themselves. The supply that Beazer is quoted must be only Calif. DR Horton has home construction going in 76 different subdivisions in the Houston area alone!! It would be much better for them to only buy the lots as needed. However, they would never be able to control price or assure supply. As massive production builders they have to have supply or they are out of business. And, I would take it as a bullish sign they are buying land. SteveD
Steve, it is bullish. I just noticed this thread said something about RE dying. No way. It is just cycling as usual. Land is the life blood. A Builder doesn't completely stop acquiring land even when the building cycle is not good. In fact this is the best time time to buy land, when things are in a slump and land is cheaper. It may look like a Builder is in inactive, but they are just not building homes or spending a lot on infrastructure. They are preparing for the next boom and they need zoned land for that. There will be a slump. It is just a part of the game. Right now there is more room below than above. So the risks are much higher for the Builder and Buyer. And of course the buyers need jobs and decent interest rates. A healthy economy. The layman will miss the signals of the top just like rookies trading stocks. No Builder is going to say, "hey watch out prices are really high, maybe too high now. Why don't you wait."
We have a global economy and a US wide RE market. Only the very best property will be "safe" in a bad slump. People like me will be looking for yours if you are not careful. Sorry, but that is just the truth. Oddly, just before a slump, the last buyers are those who have finally scratched together the money to "qualify". They are panicy about getting in before rates go up. Multi-family and starter homes are the last to sell. And Builder inventory does not include raw or partially improved land in my writing here. There are 2 parts to the building business. The land developer and the builder. Some big outfits do both. Just trust me on this. The developer of land usually gets 1/2 of the projected value of the improved land. Land developers quite often don't like or understand building and vise versa. I know developers who have never put a shovel in the ground. "Mortgage foreclosures and sheriffâs sales of homes have reached crisis proportions in parts of the state, says Pennsylvania Banking Secretary Bill Schenck. Though foreclosures may have already peaked, the fallout continues across Pennsylvania â with sheriffâs sales hitting record levels in some areas and homeowners like Lett resorting to desperate measures to save their homes. Only now are officials around the state beginning to understand how widespread the foreclosure crisis has been. Pennsylvania has the sixth-highest foreclosure rate in the nation. Already, there are numerous signs that the expansion of homeownership in recent years has been a sweet dream turned sour for Pennsylvanians in broad swaths of the state. Banking Department studies attribute the rise in foreclosures to such factors as the weak economy; a relatively high rate of penetration of subprime loans, issued on less favorable terms to people with less-than-stellar credit; and poor decisions by both lenders and borrowers. Mark Scolforo, ASSOCIATED PRESS, Jul 04" I know it's hard to take your paw out of the coconut. I have the same problem with stocks. Choppy, choppy, spikey tops. Check a 3 yr weekly chart of the $TNX. Annotate it with 3 DT lines and a more recent uptrend line. Extend the DT lines thru to the new support areas. Use MACD and RSI 14 and draw an uptrend on them. It is a beautiful chart. How can lines do that? TNX is the proxy for mtg money interest rates. Three fans and you're out! Or look at the same time frame $HGX:$TNX. H&S anyone? I really do like charting. Fascinating how it works. I'm done. LOL
Billbiuld: Another issue...20yrs before an area explodes, insurance co's are buying up farmland. This has been the history in my state...AZ. After cashing out Phx they're down in Eloy(between Phx & Tucson) buying like crazy...so I hear.
Hmmm... We'll have to see how that example plays out. Anyone else have similiar economic indicators related to mortgage money?