Tuesday, October 31, 2006

Moths to the Flame

From the Sacramento Bee:

New homes on the horizon
Despite slow market, outside builders have big plans for region.

It might seem the worst time to start building houses in the Sacramento region with prices dropping and so many homes for sale. But a pair of deep-pocketed newcomers -- divisions of a U.S. timber products giant and a major Japanese conglomerate -- are positioning themselves to make sizeable new splashes in the region's home building market.

Analysts, citing the region's growth forecasts, say more are likely to show up, continuing a trend that has seen waning market share for locally owned builders and increasing dominance by publicly traded home builders and subsidiaries of large corporations.

"With every down there's an up," said David Ragland, vice president for community development of Los Angeles-based Pardee Homes, which plans 4,000 new homes in the coming years in Natomas, Rancho Cordova and north Stockton. "Personally, I would like to see the upside last a little bit longer. But there are opportunities in a down market as well."

Also new to the local market is Irvine-based MBK Homes, which plans to start constructing the first of its planned 600 homes in the region within weeks in Citrus Heights. The 66-home Camden Place is scheduled to open next spring south of Greenback Lane off Auburn Boulevard.


Anonymous said...

I'm glad that publicly traded rather than private builders are planning these new developments. That way, I can take advantage of their poor judgement and short their stock.

Anonymous said...

Moths to the flame indeed. Hope they don't get burned.

JR said...

The irony in all this is that it is the builders who will lead the way out of this pricing bubble. They can produce houses for 30-40% less than current "values" and they must product to live, so they will. Granted, they are going to feel their own pain as this market corrects and slows and they downsize and reduce their profits.

The fact of the matter is though, we should all wish a very healthy stress on them, so they can recover strongly and live to build more product for everyone. It sort of reminds me of a prayer on my friends wall that goes something like.. I pray you have enough....success to make you strong, failure to make you weak, hope to keep you dreaming, despair to keep grounded...... The point is to stay balanced....a place we are not at right now in the housing market. But eventually, we will get there again.

Anonymous said...

they make money on housing ads...

and car ads...

without those, el Bee is Kaput!

JR said...

Hey Anon 7:04,

Yesterday, it was buy a house and get a free SUV. Tomorrow, it will be buy a new SUV and get a free house! And the Bee will only get 1/2 the add revenue either way.

Anonymous said...

"a major Japanese conglomerate -- are positioning themselves to make sizeable new splashes in the region's home building market"

How apropos, JR. I hope that the Japanese conglomerate is Toyota, because I could sure use a free house with that snazzy Lexus GX I've been wanting.

I think a interesting point hinted at in the article is how the housing industry will continue to mature. I think everyone involved in homebuilding sees horizontal integration as the future as the publics absorb closely helds that have strong land positions but empty pockets. The blindside here could be vertical expansion as suppliers, financiers, multinationals, and conglomerates start buying up distressed homebuilding companies.

A lumber co with an ownership interest in a homebuilder is a great idea. The $$$ saved on direct construction costs would give a huge competitive advantage. A Japanese conglomerate? Why not? A Saudi Development group bought Laing. Deeper pockets definitely allow for a longer term strategy, which makes short-term losses (relative to housing cycles) make sense if you get a few blockbusters down the road a few years.

This may be the only out for the homebuilding industry as deeper pockets and heretofore absent actors step up with long term revenue strategies. Publics are hamstrung, and can't do diddly except build out or sell current holdings, 'cause they ain't buying nothing. The 4th Q earnings reports are going to suck the air out of this bubble.

Anonymous said...

neither mbk nor pardee are public and they are not conglomerates. the bee article contradicts itself.

Anonymous said...

Pardee is a subsidiary of Weyerhauser (the timber co referenced in the article), and MBK is a subsidiary of Mitsui (the Japanese multinational conglomerate referenced). The fishwrap is right for once on those points.