Homebuilders Buying Land Again [Housing Tracker]

Homebuilder Trends

IndyMac Reopens, Halts Foreclosures on Its Loans. “IndyMac stopped making new loans to homebuilders in Q4, but at the end of Q1 it was still encumbered by $1.4 billion in commitments it had made to developers but still hadn't fulfilled. While IndyMac had no choice but to keep funding those commitments, the FDIC can decide to pull the plug… Walt Moeling, senior partner at law firm Powell Goldstein LLP: "The FDIC has the statuary rights, just like a trustee in bankruptcy, to renounce those still-to-be-performed contracts." Ms. Bair said the FDIC would do a "case-by-case review" of construction loans, [while] some of them were going to be "left intact."  (Wall St. Journal, July 15^th)

Homebuilders Claim The Time Is Right To Buy A House In San Antonio. Texas: “Greater San Antonio Builders Association/ National Low Income Housing Coalition and the Center for Economic and Policy Research: It would be more cost effective for local renters to purchase a home in San Antonio. The study shows that local renters can expect to pay around the same amount of money each month by owning a home vs. renting. However, homeowners can potentially build between $88,239 to $90,017 in equity from their homes in just four years, the study notes.”  (San Antonio Business Journal, July 11^th)

Fuel Prices Force Rethink of U.S. Suburbs. Colorado: “While home prices in [U.S.] suburbs have crashed, apartments in city centres are in demand. Homebuilders across the country are frantically trying to unload land they had intended for new subdivisions. And planners are rethinking how they can meet demand for housing. One such place is Stapleton, on the site of what used to be Denver's airport. Its developer, real estate company Forest City, puts homes within walking distance of schools and stores while linking them to the workplace by public transportation.”  (Reuters via the Globe & Mail, July 11^th)

Fitch: Road Remains Bumpy for U.S. Homebuilders.  “Fitch Ratings: The U.S. housing downturn will likely persist for the remainder of this year, though the rate of decline should moderate from current lofty levels. Most of the statistical data reported so far in 2008 are discouraging and the spring selling season was a bust, with year-over-year housing start and new home sales comparisons likely to be negative throughout 2008. ‘Fitch projects further slippage in housing metrics for 2009, with poor buyer psychology, easing pricing and excessive inventories likely to mitigate other moderately positive developments’, said Managing Director and lead Homebuilding Analyst Robert Curran.”  (MarketWatch, July 11^th)

Developer Plans Senior Units For Riverfront Site. “New Jersey: A landmark riverfront mansion in the township that has sat vacant for six years is slated to become affordable apartments for senior citizens. Zurbrugg Partners, a subsidiary of Moorestown-based Grapevine Development, bought the Georgian-style mansion, carriage house and its nearly 3 acres of property for $1.8 million from the township at the end of June… A deal was reached after the township allowed Ryan Homes (NVR), the builder working on a different housing development in Delanco, to pay $1.3 million to transfer 14 affordable-housing units required by the state to the Zurbrugg Partners proposal. That left Ryan with more market-rate homes and Zurbrugg with more capital to buy the property.”  (Courier Post Online, July 11^th)

Home Builders Back To Buying Land Despite Slump. “Lennar Corp (LEN), KB Home (KBH), Hovnanian Enterprises Inc. (HOV), Meritage Homes Corp. (MTH) are buying and developing land again -- or at least talking about it… JP Morgan analyst Mike Rehaut: Lennar spent $162 million on new land in Q2 and will spend at least $200M more by the end of Q4... KB expects to spend $300M on land and $400M on land development this year. Hovnanian is working on a land development joint venture... And Meritage is "beginning to shift from defense to offense," looking to buy land in H2’08, wrote Wachovia analyst Carl Reichardt… A new twist on land buying is private equity teaming up with builders.”  (Reuters, July 10^th)

 

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Comments

[pochovilla]

Judy: I am compelled to comment on the San Antonio Builders Association article with the link to the article. I would like to see the ASSumptions used to make the analysis. They must be using REAL ESTATE SALES math. Try for yourself using $750 per month rent and a 100K home fixed 30 yr at 5.75% zero down zero closing and add taxes and insurance. Just about a wash in an optimistic scenario. Ignore the delta cost for water sewerage trash and maintenance costs of apartment compared to home ownership. The number can be significant in this comparison. The problem is most renters struggle with the moving cost and one month rent as a security deposit. Let's say that's $1000.00-$1600.00. That doesn't go a long way at closing.
Does anyone think a $100K home will be $190K in four years? except the San Antonio Builders Association. Check the reader (local) comments.

[doylegroup]

I would hope nobody thinks real estate values will nearly double in 4 years. It would be helpful to if people didn't use the equity in their homes as an ATM machine.

[billddrummer]

Hi Judy,

Thank you for this thread, a pleasure to read as always.

Another comment about the San Antonio article: I believe the builder's association was looking at appreciation in San Antonio during the bubble years, when they estimated the amount of 'equity growth' a homeowner could expect. With values falling, new homeowners will be lucky if their new investment appreciates at the headline inflation rate. Based on current trends, it probably won't rise at the fuel inflation rate (although that would be nice, wouldn't it?).

[Judy Weil, SA Editor]

Personally, I like the comment on the San Antonio article where they say building materials have gotten cheaper. (???)

[billddrummer]

Hi Judy,

I tend to agree with you on the San Antonio piece. Although materials may have gotten cheaper because demand is way off, and suppliers are more willing to discount orders than in the past, just to move their products.

One thing has dropped in price: Building labor costs have crashed, because workers will take almost any job at any pay. Experienced journeyman plumbers here were used to making $25-$40/hour in the boom years. Now they'll take work on for $16/hour, just to get some business.

And that's for experienced people. General laborers can be enslaved for $50/day. Sometimes it's a 12 hour day, which works out to $4.35/hour with a 30 minute lunch.

Projects underway in Reno have huge signs on site saying "NO HIRING AT THIS JOBSITE."

So construction labor is getting squeezed all over the country. Yet the birth/death model the Department of Labor uses to gauge job creation is still showing jobs being added to construction related industries. To that I say, "BALDERDASH!!&quo...