Builders downsize during slow market
By Melissa Wirkus
The slowing housing market is beginning to rear its
ugly head in just about every aspect of our economy,
whether real estate related or not.
The effects of the housing market’s downturn are
most apparent in the fact that there is such an overwhelming
surplus of un-bought homes
that are for sale on the market. This is because during
the boom there was such a demand for homes to be built,
and then things slowed down and now there are way too
many newly-built homes and developments on the market.
Builders are now realizing the fact that they need to
scale-down and downsize their companies in the face
of the slowing market and low demand for their products.
An August 30, 2006 article by Annette Haddad of The
Los Angeles Times, “KB home cuts holdings as market
cools,” discusses the downsizing of one of the
nation’s largest homebuilding companies.
“KB Home has started pruning its land portfolio
in Southern California, a byproduct of a slumping housing
market that is forcing big builders to reevaluate their
property holdings. The Westwood-based builder said Tuesday
that it had sold its 49% stake in the massive Anaverde
master-planned community
in the Antelope Valley to the majority owner, Empire
Cos. of Ontario.”
This sale shows that builders are realizing the severity
of the slowdown and need to streamline their inventory
and products. In the past few years when the real
estate market was booming, many major builders invested
in a lot of development land and are now finding that
they do not have much use for it.
“KB, the nation's fifth-largest home builder,
in recent years has beefed up its land-development business
to capitalize on rising property values amid a six-year
housing boom. Land developers typically profit by acquiring
property and increasing its value by upgrading it into
lots ready for construction.”
“But now with demand for new homes declining,
major builders are under pressure from Wall Street to
justify their ownership of land that isn't already primed
for building and that doesn't have a prospective buyer
lined up.”
Home sales are declining by the day, so it makes prefect
sense for big companies to sell land that is not spoken
for yet or not even built on.
“Less demand for new homes mirrors the soft demand
for land in the area, said Michel Faris, a land broker
with Park Place Partners, which specializes in Antelope
Valley real estate. ‘A lot of the market is psychological,’
he said. ‘Buyers are not willing to take risks
now, whether with raw land or finished lots.’”
During this downturn, home building
companies have to be extra conscious of the business
decisions they make since even one wrong move could
severely injure a company.