Homebuilders Still Buying Land - Housing Tracker

Quote of the Day

"I don't think we're anywhere near a bottom in housing. We're going to have a big inventory of unsold, unoccupied homes that's going to take three or four years to clear out.'' - Eli Broad, a philanthropist and co- founder of KB Home. Broad expects home prices to drop another 20%. (Bloomberg, Apr. 28th)

Homebuilders Land Issues

Home Builders Changing Business Model. “Lennar’s (LEN) 2007 loss all but canceled out its profit from 2005-2006… WCI Communities’ (WCI)… 2007 loss offset its combined annual profits since 2001… Morningstar analyst Eric Landry… expects to see fundamental changes in homebuilders operations: [1] Move to a “land light” strategy in which [builders] no longer carry large inventories of lots for building. That will drive up their cost of acquiring land but lessen the risk… [2] An end to the current form of joint ventures to supply land. The new ones won’t have builders in the driver’s seat and will be led by pension funds and investment banks.” (Florida Trend, May 1st)

Centex Corp. (CTX) wF3Q08 (Qtr. End 12/31/07) Earnings Call Transcript. Cathy R. Smith – EVP, CFO, Centex Corp.: The fastest way to healthier and normalized margin is to move to the land we have now, instead of new land… So that means that we have continued to spend on land both acquisition and development… Our land spend totals have come down pretty precipitously over the course of the last three years or so $4.8 billion to $3.2 or $3.5B down to this year, a little around $1.618 and half of that again next year… And that will continue to help us to generate cash… I'm highly confident you'll see our unsold inventory come way down in [FQ4’08.” (Seeking Alpha, Apr. 30th)

Meritage CEO Turns Optimistic. “Meritage Homes (MTH) CEO Steve Hilton: Land pricing [is starting to] deflate… [In H2’08] Meritage plans to work through its short lot position of legacy lots, then reload by gravitating toward opportunities that might hit the income statement in 2009… Hilton pointed to finished lots in Northern California that his division had paid $125,000 for that are now available for $45,000-$50,000. "Before, we were building 2,800-square-foot houses on those lots. But if you build a smaller house with less features and can price it in the [upper] $200,000s, there is a compelling opportunity to find a broader audience." The company could make a 20% gross margin.” (Big Builder Online, Apr. 29th)

NVR Actually Makes Money. “NVR (NVR) isn’t taking huge land write-offs, like its public builder peers… Instead of buying land it purchases options, typically at 10% or less of the land’s cost. Developers take the equity risk right up until NVR starts construction, and “sometimes even later,” executives there like to joke. NVR gave up some upside during the early part of the decade when some builders made more on land than they did on homes. But now it’s one of the few publics in the black… As the biggest builder in many of its markets, the company gets a first look at the best land deals.” (Builder Online Blog, Apr. 29th)

Ryland Group (RYL), Inc. Q1 2008 Earnings Call Transcript. “Chad Dreier, Chairman, President and CEO Ryland Group: Land expenditures in Q1, including acquisition and development, dropped 63% to just about $63 million. Instead of the usual seasonal uptick in speculative inventory that comes with the spring selling season, we actually reduced our total spec count from 823 units at year end to 686 units at the end of Q1’08. More importantly, homes over 120 days from start without a contract dropped by 253 units, or 40% sequentially, to 373 units, allowing us to take $54M out of finished speculative inventory.” (Seeking Alpha, Apr. 25th)

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