Now that we have the mid-term elections behind us, it’s time to clear out the noise and focus on the real issues that will affect your future housing and land strategy. Here are 4 points for strategic perspective that should influence your business planning in 2011 and beyond:
- Keep an Eye on the Banks (for good and bad!): Home builders and developers, keep managing the business carefully and watch the banks for increased disposition of distressed homes (which drive price down) as well as distressed land (which provides the opportunity to make money). The selling from banks is increasing, albeit slowly, and is taking far longer than we would have imagined, but we still believe that there will be tremendous land-buying and bulk-REO opportunities in the future.
- Do Your Homework: Those that have done the research are being rewarded because their newly-opened projects are targeted at today’s buyers and are outselling the competition. Also, some land buys have worked out well while others have already resulted in impairments.
- Think Long-Term: In the short-term, the likelihood of home price declines outweighs the likelihood of price appreciation. A solid recovery looks like it will be pushed to at least 2012.
- That said, land doesn’t get too much cheaper than it is today. Consider that a land investment whose greatest downside risk is carrying time, or selling at a small loss to a farmer, can be a good investment for a number of reasons . . . and it probably doesn’t deserve a 20% IRR with conservative assumptions.
- Demographics support solid long-term housing demand.
- Keep Your Eye on the Upside: Though a robust recovery seems unlikely, the seeds have been sown for a for-sale housing recovery. We currently have modest job growth, low construction levels, low home prices and a government-engineered 4.5%+/- mortgage rates and 3.5% down payments for first-time buyers.
The key to making smart decisions is to think strategically and make informed decisions. Successful strategies vary widely based on your 1) core competencies, 2) your geographies, and 3) your appetite for risk. Define all 3 of these, focus on them, get the facts, and make some great investment decisions!
