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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: BWAC who wrote (26024)12/15/2004 2:56:00 PM
From: Elroy JetsonRead Replies (1) of 306849
 
I suspect that it will be worse than a drag on profits. None of the builders I'm aware of have yet emulated the techniques used by the Weyerhauser home-building units for continuous production during down-turns.

The rest of the pack are still buying land only a couple of years in advance of need. When a down-turn hits, they are stuck with extremely high-priced land which can only be sold at a loss.

All of their talk about buying land using options only applies to the pre-zoning approval stage. At that point all builders put their money down on the table and gamble there's no downturn while they build over the next two years.

By contrast, Pardee and other Weyerhaeuser units make major purchases at home builder bankruptcy sales during building down-turns. This cheap land isn't built on until the next downturn in the building cycle. What little sales volume there is goes to firms like Pardee which can lower prices substantially while still booking increased profits.

Pardee has produced consistently higher year-over-year profits since 1986. I don't think there's another home builder in the world that can say that, or will be able to emulate that in the coming down-turn. Most file for bankruptcy and sell their land at a 90% discount to someone like Pardee.

factory home building will be a huge drag on profits when they are under-utilized in a downturn.

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