Wednesday, April 27, 2005

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".

8 Comments:

At 10:52 AM, Blogger John Law said...

sometimes I wonder if the US dollar is just a French Assignat!

http://en.wikipedia.org/wiki/Assignat

I don't know if that's really right, but one can wonder.

 
At 11:37 AM, Anonymous Anonymous said...

Ben, land bank or no, what do you make of the news in William Lyon Homes (WLS) being taken private? It's up big today.

 
At 12:50 PM, Blogger Melody said...

Not only do the home builders become rich, but they cause homebuyers to go belly up :( After reading a few stories it breaks my heart. When will it end? For your reading enjoyment or should I say reading disgust?

http://hadd.com/
http://www.hobb.org/hobbv2/index.php

 
At 1:05 PM, Blogger Ben Jones said...

Anon,
I will check into WLH. This is the first time I've gotten through to the server in 2 hours. Sorry for any delays!

 
At 1:10 PM, Anonymous Anonymous said...

Ben,

Just read a story about Fannie Mae... they're thinking about a "bright line"... what does that specifically mean? i'm under the impression that that means Fannie will have to qualify the mortgage as either a prime or sub-prime... is that right?

 
At 3:32 PM, Anonymous Anonymous said...

The bright line, if made law, would prevent the automated mortgage function, among other things. I doubt it will pass, as that would kill the mortgage biz, IMO.

 
At 4:22 PM, Anonymous Anonymous said...

Fannie Mae does two things: it holds mortgages itself (primary market), and it guarantees mortgage-backed securities held by others (secondary market). My understanding is that the bright line provision would take Fannie out of the primary market. It won't pass, since it would force Fannie/Freddie to liquidate 1.5 Trillion in assets.

 
At 5:52 PM, Anonymous Anonymous said...

Here's one explanation of what Fannie does (it may have already been posted elsewhere on the blog--I dunno):

http://www.mises.org/fullstory.aspx?control=986

 

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