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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Slagle who wrote (62361)	4/21/2005 11:47:01 AM
From: energyplay	Read Replies (1) \| Respond to of 74559

Hi Slagle - I believe the optioning of property is pretty common, as is "land banking" - buying now what you might need in 5-10 years. The home builders have their own geologists, urban planner, political forecasters, etc. so they know where they will be likely to build in the future. They will also use part of a big tract and build on about 25%,, wait 2-4 years, then build another 25% - this lets them benefit from the land appreciation. The public homebuilders had about 5% of all new home sales around 1970, today it's 25%. The house designs are done well, and are often targeted toward demographic subsegments - family with young children, family with older (teen) children, older parent living with a family with young children, wife needs a special closet just for her shoes, etc. This means the house will be much more useful for those customers - far more useful than generic multi-purpose design. Outside of the low end homes (KB mostly), quality has been pretty good. Part of the quality issue seems to have been expectation management - you get all new kitchen appliances, but interior walls are still drywall over frame. Overall, the whole industry is a real success story based on improved product and price, and efficent operations. >>> The big, somewhat hidden driver in their success has been the increasing land use and building restrictions - this has made their banked and optioned land more valuble, and also raised the final prices, and reduced much of the competition who cannot handle the multi-year permitting process. Add in the subsidy effects of the mortgage interest tax deduction and Fannie and Freddie pumping in money, and the industry has had some strong 'tail winds' in the form of inventory profits.