Thursday, October 2, 2008

Land, way worse price declines than homes.

From the Wall Street Journal,

As it struggles through the housing crisis, home builder D.R. Horton Inc. is unloading land across California at big discounts.

Horton two weeks ago sold about 2,000 house lots in Desert Hot Springs ... for $7.8 million, according to county records. William Shopoff, a land investor ... estimates Horton paid about $110 million for the land before spending on improvements.

Who knows how much they spent on improvements. But even if they spent nothing that sale would be 7 cents on the dollar. YIKES!!


Oldtimer said...

Wow. At less than $4K per lot, that is back to mid-to-late 90s pricing.

Out near the furthest reaches of civilization in the IE, where relatively flat land is plentiful, that is probably an appropriate price.

With those land prices, developers can profitably build out homes at construction costs + land development costs (around $20K/lot) + builder profit of 8%. Its been a while since I've seen signs touting "New Homes from the low-$100s". But that is where that development is going.

FairEconomist said...

In a big real estate crash, houses often come to be worth less than construction cost. It's already happening in outlying areas, based on your own post of sub-80/sq.ft. pricing. This implicitly values the land as having negative value. At that point the "price" of true undeveloped land doesn't indicate its expected value (which is negative), but works more like an option to get if for nothing if it ever becomes worth something again. That could be a really low number, and Horton might well have gotten a really good deal on this. Land in desert exurbs is a really good candidate for "never going to be worth anything" at this point.

jennalee ryan said...

i dont think $80 square foot is less than construction cost. Houses by the same builders (horton, KB, etc.) are selling here in san antonio for $50 a square foot, and they arent building them here at a i would assume construction costs are around $45 or less per square foot. remember. these are mass produced. $80 is more what an owner builder should expect to pay for a lower end custom home

Oldtimer said...

Depending on material costs, I think construction costs in CA are running between $60 and $80 per sf. They're a bit higher here due to building codes.

I recall one builder that boasted about costs below $50/sf in the mid 1990s, but everyone else was in the mid-to-high $50s. Materials are up since then.

Santa Ana River Rat said...

Perhaps the difference in building code? Here in Cal, we have to account for that nasty earthquakes we get from time to time, different requirements from hurricane or tornado. Also the labor cost is higher in Cal right? What about the cost of fuel? Also isn't Cal one of the most expensive states to meet the worker's comp ins requirement?

InlandEmpireX said...

Just curious Mr. GolferX, are you being hit by the stock crisis? Haven't see you update your blog for a little while..