Major Homebuilders Looking for Lots

Denver, CO, Aug. 26, 2009--Homebuilders that spent the past three years selling off land and writing down the value of property holdings are scouring markets in Sacramento, Phoenix, Denver and Orlando for deals on ready-to-build lots as they prepare for a rebound.

Writedowns and write-offs by 14 of the largest publicly traded homebuilders totaled $28.5 billion since the start of 2006, according to a July 15 report by Fitch Ratings.

New home sales climbed 11 percent in June, the biggest gain in eight years, and housing starts were the highest since November. Single-family home starts increased again in July, for the fifth straight month, the U.S. Commerce Department reported on Aug. 18.

“It’s a good time to acquire properties, because you can often find distressed properties at low prices,” said Bernie Markstein, senior economist for the Washington-based National Association of Home Builders.

“A lot of national builders have access to large funding,” Markstein said. “They have access to more sources of capital than smaller builders tied to local lenders.”

Meritage, based in Scottsdale, Arizona, has gone on a shopping spree in metro areas that were early victims of the housing slump, buying ready-to-build lots sold for one-third of the peak prices.

In addition to Meritage, other “land light” builders shopping in different cities are M.D.C. Holdings Inc. of Denver; KB Home of Los Angeles; NVR Inc. of Reston, Virginia; Ryland Group Inc. of Calabasas, California; and Hovnanian of Red Bank, New Jersey, Seay said.

Hovnanian paid $25,000 per lot for 160 bank-owned finished lots in Florida, about 11 percent of the $220,000 original cost for land and improvements, Ara K. Hovnanian, the company’s president and CEO, said during a June 3 earnings call.

“We are seeing more land deals like this making their way to the surface around the country and will provide a once in a generation opportunity for us to reload and reinvest in land,” Hovnanian said, according to a transcript of the call.

Ryland spent $31 million to purchase new land in its second quarter, said Larry Nicholson, president and CEO.