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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (20153)1/2/2005 5:39:21 PM
From: Elroy Jetson   of 116555
 
There's one aspect to this story about $650k Del Webb homes in Las Vegas I can't agree with.

I did the quick math on what Dell Webb, the builder had into these homes and figured that he had no more that 130 - 150k into the land and the construction costs for each home.

Had these homes been built in 1996, the $150k cost estimate would have been true. But the same home built recently would have cost at least $520k because of the run-up in land costs.

When I worked for Pardee Homes, we were the Number One builder in Las Vegas and we had the lowest cost structure. But our profit margin in Las Vegas was only 12% - compared with 52% in San Diego where Pardee had purchased the land 25 years earlier. The huge run-up in land values during a building cycle accrues to the land owner. No builder in Las Vegas has huge inventories of land they purchased 25 years earlier. I'm confident the builder profit margin on Las Vegas homes is well less than 20% at best, even in this bubbly market.

Most land for homes in Las Vegas is purchased from the Federal Government BLM. BLM auction prices set the price for private sales. I'm sure we all recall the astronomical prices builders have been paying at BLM auctions in Las Vegas.

death-valley.us
forrelease.com

When home prices continue to decline, builders will have large losses on the land inventory they do have. The parties walking away with the profits from the inflated prices paid by unhappy home owners are the BLM and private land owners who sold to the builders.
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