Back to the Future: Homebuilders Snapping Up Land

Uh-oh! The New Normal is beginning to look like the Good Old Days.

From the WSJ:

Foreclosures and depressed prices are still hammering the Phoenix housing market. Yet home builder PulteGroup Inc. this month had to fight off six other bidders to win land in the suburb of Gilbert.

In Arizona and across the U.S., home builders are battling to acquire land lots in preparation for ramping up home construction. While volume is tough to track, analysts report that land deals have been rising rapidly in recent months, causing land prices in some of the nation’s weakest housing markets to rise for the first time since 2006.

“There’s been an absolute land rush,” said Gregor Watson, a partner with McKinley Partners, a California-based real-estate fund that works with builders.

Now, I was going to opine that these guys aren’t stupid and might know something that most other pundits are missing. But then again, they did loose hundreds of millions of dollars the last time they went on a land buying binge. I’ll split the difference and suggest that they have the souls of riverboat gamblers.

Two things struck me about the article.

One, they’re purportedly buying developed land, all the better to bring houses out of the ground quickly, and two they’re sitting on mountains of cash.

The first suggests that they think that a recovery in the housing market is more imminent than many suspect. Maybe it’s a just in case defensive maneuver bit I don’t read it that way.

The liquidity aspect says to me that maybe they just think that land at current prices surpasses anything else they can invest in, particularly given current interest rates. Buy it, sit on it if you must, but be prepared when the cycle rolls back around.

Either way, it’s a retort to the contentions of a lot of doomsters, including yours truly. These guys are betting with real money that we return to something on the order of the status quo ante. Maybe not the unsustainable boom, but certainly a healthy growing new home market.

I, for one, would be happy to be proven wrong given the positive effects this sort of change would have for the economy. Just one thing. This time can we please just let the market work without Washington goosing it? Is that too much to ask?

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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