Even before the jury's fully in on whether the nascent uptick in new-home sales is sustainable, reports from high-level home building company executives in a number of markets indicate that home builders are back in the land game with a vengeance.
"In the past four to six weeks, we've seen a sea change," said the CEO of a leading publicly traded home building company. "Until then, most of the interest in lots was coming from financial investor players. Now it's home builders. There's eight or 10 home builders aggressively in the lot market right now."
Investment "land opportunity funds" have been trolling the residential landscape all along, trying to snap up prized lots for a song. But as the global credit crisis unfolded, many of these vulture funds either went dark or remained on the sidelines, not knowing when to pounce.
Meanwhile, home builders were scarcely able to underwrite new land acquisition, given that their balance sheets needed every bit of cash in the event of another year of sales paralysis. What's occurred in the past few months is that everybody's witnessed that if prospective buyers are given enough incentives, a healthy complement of them will show up looking to buy.
Home builders who've pursued an asset-light land strategy have actually done well enough at working through their dirt inventory since the turn of the new year to reach a point where they need to replenish.
Other builders may not be so fortunate, but they still need land. They need land that's less expensive than the stock of lots they've got so that they can bring more affordable home communities to market during the earlier stages of a housing recovery. So these companies represent as urgent a demand for cheaper lots as those who are running low on lots.
All told, the strategic demand for lots from builders is putting pressure on land prices, even before they settle at the low cents-on-a-dollar level that many expected they would. Experts who are involved in land deals nationally estimate that prices for lots have reverted to about 2002 prices, which is a higher number than many would have guessed a few months ago.
"Where we thought we'd be paying $35,000 a lot, we're paying more like $45,000," the head of one large national home builder said. "Prices didn't come down as far as we thought because there are more builder buyers for these lots than we thought there'd be."
Two of real estate's most vaunted new-home residential development entities--LandSource/Newhall Ranch &Farm and what is known as the Lehman Brothers' SunCal--are still considered bellwethers for resetting land prices. But they're currently slogging through complex and drawn out bankruptcy proceedings.
Word from the field is that the most exuberant land acquisition market right now is Phoenix, but that California (excluding Southern California) and Texas have also seen the reemergence of home builder buyers for residential lots.