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Posts Tagged ‘homebuilding’

Fresno homebuilder

Donald L. Plunkett, Jr. Donald L. Plunkett, Jr.
Friday, June 20th, 2008

The Fresno Bee recently reported that Beazer Homes pulled out of the central San Joaquin Valley.  Beazer cited the decline in sales activity along with the overall decline in prices year-over-year.  As a homeowner reading this story, it is easy to think it is a negative assessment of the market.  I think just the opposite.  When the market was going crazy in Phoenix and Las Vegas three to four years ago, new builders were entering the market left and right.  They would often cite 6000 new jobs per month or some other figure, yet they were building enough houses for all of those people to own several houses each.  When national builders pull out of a market, it is good news for local builders as well as homeowners looking to re-sell their homes (less supply with demand remaining constant).

One of the problems with homebuilding companies is that they do nothing but build homes.  Developers in many other real estate segments not only build apartments, shopping centers, industrial buildings, etc. but also manage and operate these properties.  So for instance, if Trammell Crow Residential’s Northern California office sees absolutely no demand for new apartments, it can focus its operations on managing existing properties instead of developing new ones.  Same applies for AMB Property Company or ProLogis in the industrial space.

Builders Still Angry

Donald L. Plunkett, Jr. Donald L. Plunkett, Jr.
Tuesday, February 12th, 2008

Effective Feb. 11, the National Association of Home Builders announced it is political action committee (BUILD-PAC) is ceasing to make any further contributions to political candidates. It is holding off until Congress takes action on the economy. In other news, MDC Holdings (Richmond American Homes) reported a Q4 2007 cancellation rate of about 65% and a loss of $281 million. This is on top of bad news from just about every other builder (Standard Pacific, DR Horton, Toll Brothers, etc.)

Any time builders are mad, it is a mixed bag for homeowners. While no one wants a general economic slowdown or builders to lose money (after all, what investor doesn’t own a few homebuilder shares, even if it is in an S&P 500 index fund), one thing that many homeowners do want is for builders to stop building. The fact is, in recent years builders in places like Phoenix, Denver, Riverside, etc. have built way beyond actual demand. The number of homes in line to be developed in Florence and Coolidge, Arizona, for instance, was staggering. As a homeowner in Florence, you do not want 50 new home developments all around you undercutting you on price and incentives, especially because there is not an employment base to sustain that level of development right now (there will be one day). Builders should focus on more attractive niches like affordable infill and mixed use development, and even build-to-suit custom homes. Unfortunately, so much land was stockpiled that now must be written down, that this type of flexibility to cut back temporarily is simply not possible. Just remember, what is bad for builders is sometimes, but not always bad for homeowners.