The worst housing slump in 16 years made a lot of smart money vanish. D.R. Horton Inc., Pulte Homes Inc., Lennar Corp., Centex Corp. and Toll Brothers Inc., the five biggest U.S. homebuilders, said plummeting land prices cost them a combined $1.47 billion in the fourth quarter.
Builders paid more for land during the boom because home prices were rising, too. They didn't realize speculators were pumping up demand by buying houses to sell quickly. When prices reached a point where speculators quit buying, homebuilders were forced to abandon so much property they helped create a glut that drove down land prices more than 9 percent last year, according to data compiled by New York-based research firm Real Capital Analytics Inc.
``Homebuilders allowed their own enthusiasm for price increases on houses to affect their decisions on what they would pay for land,'' said Mike Inselmann, president of Metrostudy, a real estate research firm in Houston.
The decline in land values reveals the role short-term buyers played in the housing boom, when the median U.S. home price rose to $276,000 last June from $177,000 in February 2001. Industry executives, including Toll Brothers Chief Executive Officer Robert Toll, estimated that about a quarter of their houses were bought by people interested only in flipping them -- buying and selling quickly rather than moving in.
This is a very unflattering portrait of the homebuilders management teams. Either,
1.) They didn't know the role of speculators, which indicates they didn't know their own market very well, or
2.) They knew and didn't care about thinking the market would go up forever -- implying they were basically willfully blind to the situation
or a combination of the two.
Either way, we have executives who weren't being that smart.
6 comments:
This is the kind of story which rapidly becomes "conventional wisdom". Where are the stats to show that speculators were behind the rapid growth in this sector?
A story without evidence is a just a story. Blaming things on speculators diverts attention from what may be the important story - the sagging real economy.
If you read florida papers there have been lots of stories about condo projects that are 40%-70% vacant even though the units sold out.
Yes, but "data" is not the plural of "anecdote".
None of the two.
The third: the executives prefer to get a huge bonus and then retire rather than get small bonus and keep working.
Remeber, executive != investor
I don't think there is a source of such data. Nobody tracks how many homes are bought by speculators because when the buyer goes to closing he doesn't have "speculator" stamped on this forehead. So basically you are asking to be supplied with data that doesn't exist.
If you look at recent data showing that nationwide 2.7% of units are vacant, and that this is far above historical figures, do you not see that as indicative of speculation?
I think Sandro has hit the nail on the head!
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