Monday, May 02, 2005

Home Builders Sit On Years Of Land Supply

BusinessWire put out a release regarding Hovnanians' debt float. The credit agent brings up the land issue. "Hovnanian extensively uses lot options. The use of land option contracts without specific performance clauses gives the company the ability to renegotiate price/terms or void the option, which limits downside risk. At present 73.7% of its lots are controlled through options."

"Total lots, including those owned, were 100,927 at Jan. 31, 2005. This represents a 6.7-year supply based on latest 12 months home deliveries."

The "lack of available land" is easier to understand as the public home builders sit on thousands of sites, raising prices. "The company has one of the lowest owned-lot positions in the industry." Companys like Centex hold far more.

These lots may never be bought. The "backlog" can be cancelled by the buyer. How many new home "sales" will ever be built?

16 Comments:

At 4:23 PM, Blogger John Law said...

hhhmmm...so they create a land "shortage" and get some bill based that opens up nice new lands that were part of some nice National park or other protected lands. sounds like a plan.

 
At 4:32 PM, Blogger realist said...

when the bubble bursts, these builders will have little choice but to dump these lots on the market in an attempt to recapture some of their capital. this will be like pouring gasoline on a fire.

 
At 5:22 PM, Anonymous Anonymous said...

Orange County has damned little land left. I would expect prices to remain in the stratosphere at least until interest rates rise to above 4%. Houses may sell a bit more slowly, but recently they've been selling insanely fast.

After the last bubble about a decade ago, prices didn't decline, houses just stopped selling. (Interest rates were pretty high back then, of course.)

Since OC has a fairly low unemployment rate, it remains desirable, and housing isn't going to be a bargain anytime soon, if ever.

 
At 5:58 PM, Blogger deb said...

Based on what we went through in the San Fernando Valley in the early 90's, I have a really hard time believing that prices didn't decline in OC. (I posted this tale on an earlier article) My townhome model was selling for up to $190, we bought at $156, watched it go down to $100 when the forclosures got really bad. I was a realtor during that time and saw many homes sell for 50% of their peak price.

 
At 6:02 PM, Blogger John Law said...

(My townhome model was selling for up to $190, we bought at $156, watched it go down to $100 when the forclosures got really bad. I was a realtor during that time and saw many homes sell for 50% of their peak price.)

that sucks. what were your thoughts on that at the time?

 
At 6:05 PM, Anonymous Anonymous said...

The fact that the developers sit on all this land makes me very, very angry. Joe Average should be able to buy an option on a lot and then hire whomever he wants to build him a house.

The way it is, he who owns the lot options makes the rules, artificially constraining the supply and setting the prices too.

 
At 6:06 PM, Anonymous Anonymous said...

I can't beleive that CEOs of the home builders are making out like bandits. What is so hard about building homes ? Why do we as a society pay these people this sort of money ? I'm referring to the $260M in insider stock options in one of the other articles.

 
At 6:44 PM, Anonymous Anonymous said...

"Orange County has damned little land left."

This didn't stop Japan's bubble from popping (RE down 14 years straight.)

It doesn't matter how "desireable" (a purely subjective term based on emotions that are subject to change) a place is or how little land is left, this is a gigantic financial credit bubble unlike any that have come before and OC will get slammed HARD.

Your post sounds like a puff piece for the CAR.

 
At 6:47 PM, Anonymous Anonymous said...

"I'm referring to the $260M in insider stock options in one of the other articles."

Yes I heard this on a CNBC and couple of articles.

We are seeing lots of maniac building in the San Francisco Bay Area. There was little activity in early 90's during the prior bubble. On a side note. The South Bay has surplus 20 year old vacant business parks. The land owners are already moving forward with selling their inventory. Some 40 Million Sq Ft valued at $1.5B. But cannot sell due to lack of increase employment in High Tech field.

 
At 8:01 PM, Anonymous Anonymous said...

There is nothing to stop high-rise development in OC eventually. Suppose you could buy a 3 bedroom high-rise condo, complete with balancy for a little gardening, and a communal pool/spa/health club, for $100K, while the similarly sized 3 bedroom house on its own plot of land costs $1 million? Granted, a house may be nicer for a family with kids, but don't you think a 10 to 1 price differential might override other considerations? I'm always hearing how these young families are the ones who are strapped for money.

My feeling is that the main reason many people prefer houses to condos is because houses are perceived to appreciate in price more than condos. If the appreciation ever stops, then you may see a huge shift in preferences towards high-rise condos, given that they are potentially so much cheaper, and that would devastate house prices.

BTW families living in high-rise condos is quite common Europe, Tokyo, Hong Kong, and Manhattan. And I don't mean just low income families either.

 
At 9:37 PM, Anonymous Anonymous said...

We keep thinking about selling and renting, but the rental market in OC is still too expensive to make it worthwhile. Maybe we should all move to Tucson and buy mansions.

 
At 9:58 PM, Anonymous Anonymous said...

"We keep thinking about selling and renting, but the rental market in OC is still too expensive to make it worthwhile. Maybe we should all move to Tucson and buy mansions."

I don't know what everybody in OC is smoking but here are some facts.

3/2 in Buena Park renting for $1900 right now. Closest comparable I could find on realtor.com was around 500K that wasn't a condo/townhouse, etc. That would be about $3100/mo. with a 30yr. fixed 20% down @ 6%. That doesn't include maintenance or anything but PITI.

I guess $1,200 a month more in your pocket makes renting too expensive. ?!?!? OC is way overpriced and will crash and burn like the rest of CA.

 
At 10:09 PM, Blogger delecti said...

"That would be about $3100/mo. with a 30yr. fixed 20% down @ 6%."

who puts 20% down anymore? It's more like finance 80% and piggyback the down payment...

which would probably bring the monthly down to an attractive level...so seductive!

 
At 11:17 PM, Anonymous Anonymous said...

"OC is way overpriced and will crash and burn like the rest of CA"

"All your San Franciscos will have to fall and burn again" J. Kerouac

 
At 5:00 AM, Anonymous Anonymous said...

After the last bubble about a decade ago, prices didn't decline, houses just stopped selling.

We owned a home in Orange County that declined between 15-20% from 1991-1996. The market had already been slowing when we bought it, so the total loss from top to bottom was around 25%. There were many more homes on the market, but the prices of all kinds of housing went down as well.

 
At 11:33 AM, Anonymous Anonymous said...

"There is nothing to stop high-rise development in OC eventually. Suppose you could buy a 3 bedroom high-rise condo, complete with balancy for a little gardening, and a communal pool/spa/health club, for $100K"

I'm sure there are already condos in OC (even if not the high rise variety), and I doubt they can be had for less than $300k. The substitution effect has already driven up the price of "affordable" housing everywhere in socal. For the "prestige" of a high-rise address the price would probably be much higher.

 

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