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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (59114)	8/4/2006 1:57:55 PM
From: Les H	Respond to of 306849

TWST: Stephen, how bad is the land issue for the industry at this point? Mr. East: I think it's pretty significant just because I believe that a few of the builders got very aggressive in land purchases in 2005. They were willing to pay pretty much whatever price they needed to pay to get that piece of property because they were expecting the volumes to continue to grow. I am not as concerned about actually writing off land that's on their books because most of this was optioned. I am more concerned with the sheer years of supply that they have and the cost to carry that type of thing. I think that you will see a very stagnant land market for the next several years as well. Mr. Oduma: I wanted to add something to what Steve said about land purchases. One of the things that we look at is not the absolute amount of land, but whether it is supported by adequate equity. When we look at inventories, we like to separate work-in-process (which is typically quite liquid because it's composed of backlog orders, or homes under construction that will typically be sold within six months to a year) from land under development or land held for development (which is typically held for a much longer period). The danger we see is when a builder has borrowed against the land or is over-leveraged and may be forced to liquidate the land at fire-sale prices to pay off their debt. We are not too concerned when we see lots of land with a huge equity cushion, in which case they can ride out the downturn. biz.yahoo.com