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

To: Elroy Jetson who wrote (18054)	8/25/2004 7:31:32 PM
From: Jimbobwae	Read Replies (3) \| Respond to of 110194

Home builder margins are not dominated by raw land costs Sure new development increases values of comparable land but the key is finding raw land that the developer can absorb the risk of providing utilities and gaining approvals for new developments. There are huge areas that have been approved for development but not built on yet. Typical land cost represents 20% of total home sale price for standard new suburban development. Therefore land does not represent "the majority of the cost of the finished home" and home prices do not need to rise significantly for the land to be developed. There are all sorts of angles people are trying to work to claim that housing supply is in a bubble. Hardly ever do you see discussions that include the demand side of the projections that the US is going to need to satsify a demand for 20mm more units by the year 2020 (Good ole fashioned demographics and population projections). The risks associated with land development approvals, costs for utilities, and roads make up the key parts of the cost and risk equation for homebuilders. This doesn't even address the defining/limiting requirements of getting the location that provides the most critical factors: Water, schools & proximity to transportation. We are not in the same wild speculative environment that left its mark on the mid 1980's. Besides, that wasn't a housing bubble but a credit bubble.