NEW YORK (Reuters) - Homebuilders in the UnitedStates, who lost hundreds of millions of dollars when land they bought during the housing boom lost value after the bust, are bidding up lots despite new softness in the market.
Home sales have slumped since the federal home buyer taxcredit expired in April. In July, new home sales were at their slowest pace since the Commerce Department started tracking them in 1963.
But builders keep restocking land inventories because theyfear shortages and because they see rivals doing it, said industry consultant John Burns, who has been advising them to "back off for now." If demand for new homes does not revive, these lot purchases could jeopardize profitability into 2012, when they would build on land they are currently buying.
Falling home prices would mean they are overpaying today,especially because they are increasingly focused on the same markets, where they are cannibalizing each other's business.
The economy softened more than anybody anticipated, Burns said. He and the rest of the industry is well aware economists would have builders stop altogether rather than add to the already excessive supply. "But builders need to build enough to justify theirexistence," Burns said.
TIE IT UP
Some industry consultants and land brokers say the pace of land purchases has slowed, but not significantly.
Land deals are still drawing multiple offers, although the number has dropped, said Greg Vogel, Chief Executive Officer of brokerage Land Advisors, which operates in Arizona, California, Nevada, Florida, Texas and other states. Tom Dallape of the Hoffman Company, a brokerage in California and Nevada, said he has done as many land deals this year as last year. Land prices have fallen, but not by much, he added.
"A lot of these guys have been working on these deals for the last 120 days and still have corporate mandates to go out there and find land and tie it up," said broker Ryan Arp of Westland Properties Group in the Phoenix area.
Fox Business (09/08/2010)
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