In the last 4 years, the public builders have reduced their land holdings from 2.2 million to 700K lots, and only built on about 200K of them during that time period. What happened to the remaining 1.3 million lots?
Clearly, farmers, land bankers and lenders own the bulk of those lots, most of which are in outlying areas that are now worthless except for farming. For those with patient capital, such as family money, we advise purchasing the lots in outlying areas and holding them for a better day (unless, of course, they have improvement district bonds on them).
One interesting statistic is that home sales have fallen much further than lot supply. Public builder sales have shrunk so much that the “years supply” of owned lots has actually risen from 2 years to 5 years, despite a 34% decline in lots owned from 3Q06 to 3Q10.
Clearly, many of the public builders don’t need to buy lots in 2011, and we think it will be a relatively quiet year for land acquisition.