Home Builders Have Become Land Banks

This Star-Telegram story gives some insight into the inventory that home builders are accumulating. "Home building, long a fragmented business with scores of small players, continues to consolidate around its large publicly traded companies."

"D.R. Horton, Pulte, Lennar, Toll Brothers, Centex and about half a dozen others have distinct advantages, which become more pronounced in a tough market. They have deep pockets to buy land and wait out the long permit process in many cities, and they enjoy economies of scale on everything from kitchen appliances to raw land."

The plan is that when the market stumbles the major builders will take market share from the little guys. So they see the massive accumulation of land as a brilliant scheme. When you hear that there is no land out there, think of this. "Because it has the most lots and inventory across the country, D.R. Horton is more vulnerable to a housing glut. As long as a downturn doesn't happen everywhere at once, it can remain the aggressor."

Home builders have turned into land banks and this blog has many posts which reveal the multi-billion dollar buildup in "inventory".