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Builders are gearing up to build more houses

April 26, 2010

By all indications the U.S. has more than the required number of houses in stock. According to data from the National Association of Realtors, at the end of March there were 3.6 million homes for sale. The average inventory of “for sale” homes is 2.7 million, so the excess supply is 900,000 units based on historical averages. NewObservations.net estimates the current supply to be 8.6 months worth, while the 10-year average has been 5.8 months.

Plus, anywhere from 11 million (First American’s estimate) to 25 million (Deutche Bank’s estimate) homeowners owe more on their homes than the homes are worth, keeping many homeowners where they are unless they decide to strategically default.

It doesn’t sound like the best environment for homebuilders to pay up for finished lot inventory to re-start home production. But the Wall Street Journal reported last week that PulteGroup Inc. out bid six other potential buyers for lots located in the Phoenix suburb of Gilbert.

“Lot prices in Phoenix and Southern California’s Inland Empire have soared more than 60%. Sacramento, Orlando and Los Angeles are up between 30% and 40%.”

Builders have cash and tax-funds, so they’re spending the money the only way they know how–buying land. Builders are even picking up lots in hard-hit Las Vegas, where reportedly over 80% of homeowners are burdened with negative equity.

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