Monday, April 04, 2005

Home Builders Drive Land Bubble In Vegas

When the exploding inventories of the major home builders are examined it is often difficult to understand how the numbers can go so high. This article from the Las Vegas Business Press should go a long way to explain it.

"The northwest valley saw a massive price increase, rising 124 percent during the fourth quarter (!) with 200 acres of land changing hands at an average price of $437,800/acre, or $10.05/square-foot. KB Home bought 37 acres of land in the northwest at an average price of $562,300/acre, while Astoria Homes purchased 28 acres for $775,000/acre."

"(These) firms are publicly-traded national builders with large capital reserves enabling them to move quickly when a real estate opportunity arises. Unlike some developers, who may need time to arrange financing." Some of the firms may end up wishing they had been subject to a loan process before this is over.

The report should make the stockholders nervous, as inventory has been growing very aggressively for years. They have to be wondering, did we pay too much?

5 Comments:

At 3:38 PM, Anonymous Anonymous said...

The same thing has been going on here. Land developers buy up all the land and then home developers buy it from them in large blocks. When a house buyer wants to buy a house, you've got very limited selection for homebuilders if you want to live in a particular area. In effect, the homebuilders have a monopoly. Why is it that the land owners can't be forced to offer land to individual buyers, giving them enough time to secure financing on it and then they could chose a builder or build a house themselves (hire contractors to do the work, etc.)

I strongly suspect that there are kickbacks from the the home builders to the land developers to make sure that Joe public is never allowed to buy land. I'm certain this is anti competitive and illegal.

This arrangement is a problem for everyone as the price of a new home sets the price for new supply, which sets the relative price for the whole market. In effect, the land developers have the whole market at their mercy, especially when they will only sell to a few home builders.

There has to be something anti competitive when a land developer will only sell to homebuilders and not to Joe public.

Real estate deals make me sick. They always have because there is always a snake in the grass speculator involved.

I hope they have huge inventories of over priced land in their possession when the bubble bursts.

 
At 3:48 PM, Anonymous Anonymous said...

The same thing has been going on here. Land developers buy up all the land and then home developers buy it from them in large blocks. When a house buyer wants to buy a house, you've got very limited selection for homebuilders if you want to live in a particular area. In effect, the homebuilders have a monopoly. Why is it that the land owners can't be forced to offer land to individual buyers, giving them enough time to secure financing on it and then they could chose a builder or build a house themselves (hire contractors to do the work, etc.)

I strongly suspect that there are kickbacks from the the home builders to the land developers to make sure that Joe public is never allowed to buy land. I'm certain this is anti competitive and illegal.

This arrangement is a problem for everyone as the price of a new home sets the price for new supply, which sets the relative price for the whole market. In effect, the land developers have the whole market at their mercy, especially when they will only sell to a few home builders.

There has to be something anti competitive when a land developer will only sell to homebuilders and not to Joe public.

Real estate deals make me sick. They always have because there is always a snake in the grass speculator involved.

I hope they have huge inventories of over priced land in their possession when the bubble bursts.

 
At 3:50 PM, Anonymous Anonymous said...

How can there be a run up in land prices in Las Vegas ? Isn't there desert for as far as the eye can see ? How can that be a scarce commodity ?

The only way a plentiful almost free resource can become expensive is if someone(s) control the supply of it, ie there is an oligopoly. I think it is time that someone addressed this issue too.

 
At 4:47 PM, Blogger Ben Jones said...

(Isn't there desert for as far as the eye can see ?)

When I was there it sure seemed that way. BTW, some of these builders have 100,000 lots or more.

 
At 5:12 PM, Blogger Mike Linksvayer said...

The BLM owns most of the land surrounding Las Vegas. At some point geographic expansion requires buying land from the government, an unwilling seller.

But everyone has known that all along, not a justification for the past year's incredible price increases.

 

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