Left to Right: Pulte Group;KB Homes;Village of Apex;Toll Brothers
For builders, it has been a bad few years as the housing market crumbled. Many builders had to stop work on projects when demand dried up, forcing them to scramble to keep even more losses off their books. But now many of the nation’s biggest builders are beginning to spend money again by resurrecting some of their once-moribund projects, a sure sign that they anticipate future demand. So where are builders investing again?
To determine where builders anticipate new demand for housing, Businessweek.com searched articles and spoke to a variety of builders, including Pulte Group (PHM), KB Home (KBH), and Toll Brothers (TOL) about where they are investing in new residential communities. We identified projects in such states as North Carolina, Florida, California, New Jersey, Texas, Nevada, and Arizona. The communities range from a 29-home luxury development by Toll Brothers in Rancho Santa Fe, Calif., to retirement communities with more than 700 units in Las Vegas and Groveland, Fla., by Shea Homes. Lennar (LEN) agreed to acquire or take purchase options on 2,700 of 5,499 residential lots across Florida that Starwood Land Ventures purchased at a bankruptcy auction. Distressed lots are selling at a fraction of their original prices, presenting cheap buying opportunities for builders and investors. David Stiff, chief economist at Fiserv, says land costs have dropped, but in general, "demand and supply conditions are horrible."
New home sales fell to record lows in July, and permits for future construction are down, according to the U.S. Commerce Dept. Stiff says this is because, in part, the economy is bad, but demand is also being diverted to existing foreclosed homes, which in many markets will be cheaper than new homes. Builders are seeing greater hesitancy among potential home buyers, but Bob Jones, chairman of the National Association of Home Builders, states in a release that "favorable home buying conditions, including historically low mortgage rates and low house prices, should help spur additional demand as the job market gradually improves later this year."
Click here to see where builders and investors foresee demand for new housing.