The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: John Vosilla who wrote (54675)	5/23/2006 2:57:47 PM
From: Elroy Jetson	Read Replies (1) of 306849

Since Pardee Homes uses salaried employees to build their homes, illegal labor doesn't enter into their world. The biggest reason for hiring employees rather than subcontractors is that employees show up every day. Employees don't leave your job-site for six weeks while they work for another builder who is currently paying more - leaving you hopelessly behind schedule at great cost. Small builders subcontract most everything out as they don't have the consistent volume to hire full-time employees. One could imagine a crack-down on the employment of illegal labor might drive up their costs significantly. But in many areas the illegal worker must be paid the union wage, so it would primarily reduce the availability of these craft workers which would increase costs while still leaving you short handed in the immediate future. An increase in costs for small builders would be helpful to large builders, who price according to their small competition. Yes, fixed price contracts do expire periodically. But for the supplier it is like trying to push through a "serious bump up in these costs" onto Walmart. The large integrated builder is in the driver's seat. They want to review your operations to help you reduce costs. A lot of huge price increases in the retail market are the result of major customers taking a larger share of production, leaving the retail market short of product. The retail price skyrockets while the price to large customers remains stable. If there is not enough supply, the large customer will assist you in building additional capacity. And if you don't want to do that, perhaps you'd better not bring up higher prices due to product scarcity with them. So how do large home builders get into trouble? Debt. The get excited about the future and take on debt to buy land, too much land. In spite of their protests that they would never do this again, their Balance Sheets tell a different story. When the property bubble collapses the value of their land declines by 90% yet the debt remains - with an obvious outcome. When I worked for Pardee, we had $5.5 billion of land inventory, but Pardee is unique in that they have no debt. .

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