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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (18046)	8/25/2004 2:58:00 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 110194

Home builder's best margins are long in the past, when they were building on low-priced land inventory. Lumber and other building costs have increased far less than raw land prices and, in most areas, land makes up the majority of the cost of the finished home. Builders are currently paying land prices which assume hefty 25% increases in finished home prices during the period between the time they purchase the land and when the home is sold. In other words, based on current home prices, they're typically paying twice what they should for the land in order to break-even. In order to make a profit home prices will need to rise significantly by the time the development is ready for home sales. If home prices instead decline, or remain constant, at some point the homebuilders will have a land inventory worth far less than they paid.