Home Builders Join in Renewed Pursuit of Land
Even before the jury’s fully in on whether the nascent uptick in new-home sales is sustainable, reports from high-level home building company executives in a number of markets indicate that home builders are back in the land game with a vengeance.
“In the past four to six weeks, we’ve seen a sea change,” said the CEO of a leading publicly-traded home building company. “Until then, most of the interest in lots was coming from financial investor players. Now it’s home builders. There’s eight or 10 home builders aggressively in the lot market right now.”
Investment “land opportunity funds” have been trolling the residential landscape all along, trying to snap up prized lots for a song. But as the global credit crisis unfolded, many of these vulture funds either went dark or remained on the sidelines, not knowing when to pounce.
Meanwhile, home builders were scarcely able to underwrite new land acquisition, given that their balance sheets needed every bit of cash in the event of another year of sales paralysis. What’s occurred in the past few months is that everybody’s witnessed that if prospective buyers are given enough incentives, a healthy complement of them will show up looking to buy.
Home builders who’ve pursued an asset-light land strategy have actually done well enough at working through their dirt inventory since the turn of the new year to reach a point where they need to replenish.
Other builders may not be so fortunate, but still need land. They need land that’s less expensive than the stock of lots they’ve got so that they can bring more affordable home communities to market during the earlier stages of a housing recovery. So these companies represent as urgent a demand for cheaper lots as those who are running low on lots.
All told, the strategic demand for lots from builders is putting pressure on land prices, even before they settle at the low cents-on-a-dollar level that many expected they would. Experts who are involved in land deals nationally estimate that prices for lots have reverted to about 2002 prices, which is a higher number than many would have guessed a few months ago.
“Where we thought we’d be paying $35,000 a lot, we’re paying more like $45,000,” the head of one large national home builder said. “Prices didn’t come down as far as we thought because there are more builder buyers for these lots than we thought there’d be.”
Two of real estate’s most vaunted new-home residential development entities–LandSource/Newhall Ranch & Farm and what is known as the Lehman Brothers’ SunCal–are still considered bellwethers for resetting land prices. But they’re currently slogging through complex and drawn out bankruptcy proceedings.
Word from the field is that the most exuberant land aquisition market right now is Phoenix, but that California (excluding Southern California) and Texas have also seen the reemergence of home builder buyers for residential lots.
Friday, June 12, 2009
Thursday, June 4, 2009
Builders See Signs of Stabilization
Toll Brothers, Hovnanian Post Smaller Losses as Lower Prices Drive Sales
By JAMES R. HAGERTY and JOHN SPENCE
Home builders reported encouraging signs of stabilization in the housing market, but they cautioned that foreclosures and rising interest rates cloud the outlook.
Bloomberg News
Rising unemployment and increases in the foreclosure rate remain big worries for housing. Above, a Toll Brothers development in Coppell, Texas.
Two big builders, Toll Brothers Inc. and Hovnanian Enterprises Inc., said losses in the fiscal second quarter ended April 30 shrank from year-earlier levels as lower prices lured some buyers back into the market.
A report Wednesday from IHS Global Insight, a research firm in Lexington, Mass., said home prices on average fell at an annual rate of 2.2% in this year's first quarter, compared with a 12.5% rate in the fourth quarter of 2008. The report is based on price data from the Federal Housing Finance Agency. In the latest quarter, prices were down in 199 of 330 metropolitan areas examined in the study. In the fourth quarter, 312 metro areas showed declines.
More
Deals: M&A Boom is Far Off for Home Builders
Developments: Housing Shows Signs Of Stabilizing, But Rising Interest Rates Could Mar Outlook
"While it's too early to see a bottom of this housing downturn," the report said, the latest data "may signal that the market is beginning to stabilize."
Among the biggest worries are rising unemployment and increases in the foreclosure rate. Foreclosure actions were initiated on 1.4% of first-lien home mortgages in this year's first quarter, up from 1.0% a year earlier, the Mortgage Bankers Association said last week. Meanwhile, after falling to their lowest levels since the 1950s, mortgage interest rates have increased. In the week ended May 29, the average interest rate for new 30-year fixed-rate mortgages jumped to 5.25% from 4.81% a week earlier.
Toll Brothers, based in Horsham, Pa., had a loss of $83.2 million for the fiscal second quarter ended April 30, compared with a loss of $93.7 million a year earlier. In the latest quarter, the builder of luxury homes booked pretax write-downs of $119.6 million, down from $288.1 million.
Toll said its receipts of refundable deposits per community have been up from a year earlier in nine of the past 11 weeks. But, Toll added, "we believe that concerns about job security and the economy continue to inhibit traffic and the conversion of deposits to contracts."
Quarterly revenue plunged to $398.3 million from $818 million. The company declined to offer a profit outlook, citing uncertainty in the housing market.
Toll said it is starting to see more opportunities to buy land at attractive prices from banks. "Things are starting to loosen up," said Chief Executive Robert Toll in a conference call Wednesday.
Hovnanian late Tuesday reported a loss of $118.6 million for the fiscal second quarter ended April 30, largely due to write-downs of land values, compared with a year-earlier loss of $340.7 million.
Hovnanian, based in Red Bank, N.J., said the average number of sales contracts per community rose to 7.4 from 5.9 a year earlier. Even so, revenue was down 49% to $398 million.
Write to James R. Hagerty at bob.hagerty@wsj.com and John Spence at john.spence@dowjones.com Printed in The Wall Street Journal, page B2
Toll Brothers, Hovnanian Post Smaller Losses as Lower Prices Drive Sales
By JAMES R. HAGERTY and JOHN SPENCE
Home builders reported encouraging signs of stabilization in the housing market, but they cautioned that foreclosures and rising interest rates cloud the outlook.
Bloomberg News
Rising unemployment and increases in the foreclosure rate remain big worries for housing. Above, a Toll Brothers development in Coppell, Texas.
Two big builders, Toll Brothers Inc. and Hovnanian Enterprises Inc., said losses in the fiscal second quarter ended April 30 shrank from year-earlier levels as lower prices lured some buyers back into the market.
A report Wednesday from IHS Global Insight, a research firm in Lexington, Mass., said home prices on average fell at an annual rate of 2.2% in this year's first quarter, compared with a 12.5% rate in the fourth quarter of 2008. The report is based on price data from the Federal Housing Finance Agency. In the latest quarter, prices were down in 199 of 330 metropolitan areas examined in the study. In the fourth quarter, 312 metro areas showed declines.
More
Deals: M&A Boom is Far Off for Home Builders
Developments: Housing Shows Signs Of Stabilizing, But Rising Interest Rates Could Mar Outlook
"While it's too early to see a bottom of this housing downturn," the report said, the latest data "may signal that the market is beginning to stabilize."
Among the biggest worries are rising unemployment and increases in the foreclosure rate. Foreclosure actions were initiated on 1.4% of first-lien home mortgages in this year's first quarter, up from 1.0% a year earlier, the Mortgage Bankers Association said last week. Meanwhile, after falling to their lowest levels since the 1950s, mortgage interest rates have increased. In the week ended May 29, the average interest rate for new 30-year fixed-rate mortgages jumped to 5.25% from 4.81% a week earlier.
Toll Brothers, based in Horsham, Pa., had a loss of $83.2 million for the fiscal second quarter ended April 30, compared with a loss of $93.7 million a year earlier. In the latest quarter, the builder of luxury homes booked pretax write-downs of $119.6 million, down from $288.1 million.
Toll said its receipts of refundable deposits per community have been up from a year earlier in nine of the past 11 weeks. But, Toll added, "we believe that concerns about job security and the economy continue to inhibit traffic and the conversion of deposits to contracts."
Quarterly revenue plunged to $398.3 million from $818 million. The company declined to offer a profit outlook, citing uncertainty in the housing market.
Toll said it is starting to see more opportunities to buy land at attractive prices from banks. "Things are starting to loosen up," said Chief Executive Robert Toll in a conference call Wednesday.
Hovnanian late Tuesday reported a loss of $118.6 million for the fiscal second quarter ended April 30, largely due to write-downs of land values, compared with a year-earlier loss of $340.7 million.
Hovnanian, based in Red Bank, N.J., said the average number of sales contracts per community rose to 7.4 from 5.9 a year earlier. Even so, revenue was down 49% to $398 million.
Write to James R. Hagerty at bob.hagerty@wsj.com and John Spence at john.spence@dowjones.com Printed in The Wall Street Journal, page B2
Friday, May 29, 2009
Current Thinking.....
This is my first post on my blog site, so bear with me as I get started. With the impact of the current economic crisis weighing heavily on most everyone, I have had a lot of time to think about the current state of town planning and neighborhood architecture. Obviously we need to get through this current inventory of housing before we see any significany improvement in the economy. Housing is the engine that will drive recovery; however......
Half-finished "subdivisions" are in big trouble! Nearly bankrupt builders and developers are walking away from these projects to cut their losses and the existing homeowners are really screwed as their values plummet every day. What I am advocating is re-entitling these subdivisions to create viable economic neighborhoods.
While I believe the term "win-win" is often used too much, in this case I think it is true. If a bank has inherited one of these properties, it would be in their best interest to add value by increasing density, diversity and a multitude of uses. By increasing sales options through multiple "products" and pricepoints, true neighborhood can be created.
From a design standpoint I believe this creates better places, but from a practical standpoint it also makes the project viable again by enticing builders to construct a range of pricepoints opening to a broader marketplace, increased activity on the site and a renewed positive value in the community. Existing homeowners should have limited resistance to such "re-positioning" as stalled subdivisions have left them in limbo. Obviously even traditional neighborhood developments are struggling in this economic downturn, so it is not a cure to all our woes. I just believe that as a general rule, the days of the large lot, large home, typical sprawl development have been exposed for what they truly are.........
Michael
Half-finished "subdivisions" are in big trouble! Nearly bankrupt builders and developers are walking away from these projects to cut their losses and the existing homeowners are really screwed as their values plummet every day. What I am advocating is re-entitling these subdivisions to create viable economic neighborhoods.
While I believe the term "win-win" is often used too much, in this case I think it is true. If a bank has inherited one of these properties, it would be in their best interest to add value by increasing density, diversity and a multitude of uses. By increasing sales options through multiple "products" and pricepoints, true neighborhood can be created.
From a design standpoint I believe this creates better places, but from a practical standpoint it also makes the project viable again by enticing builders to construct a range of pricepoints opening to a broader marketplace, increased activity on the site and a renewed positive value in the community. Existing homeowners should have limited resistance to such "re-positioning" as stalled subdivisions have left them in limbo. Obviously even traditional neighborhood developments are struggling in this economic downturn, so it is not a cure to all our woes. I just believe that as a general rule, the days of the large lot, large home, typical sprawl development have been exposed for what they truly are.........
Michael
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