Implications of Builders’ Economics

[patientlywaiting]

Bugs, love your posts. Again thanks for sharing your insights with everyone.

What you said makes perfect sense.

And the same applies to Downtown San Diego. Now that prices are down, builders are switching to building low-income housing.

Look at the Father Joes’ village.
http://www.onlinecpi.org/article.php?id=406

Lennar said that it’ll cost from $19 million to a max of $25 million to build a 136-unit complex, including builder profit. Say that the land is worth $5 million. That works out to about $220,000 unit, not including the retail space below.

Now, a for-sale “luxury” tower is different from a low-income tower only in terms of fit and finish. If we add $50,000 per unit to for the “luxury” finish we have $270,000/unit.

Guess what? At the beginning of the bubble, condos downtown were selling beginning in the high $200s.

My example is a very simplistic look at building costs but I believe it gives us an insight into the margins.

So when I hear that builders can’t make it because replacement cost is so much higher than current market, I have to laugh.

Right now, the builders are bluffing and not building to protect their profit margins just like OPEC migh cut oil production to keep prices high.

But if consumers stop buying, they will have to crank up production again to maintain revenues to survive. If the price of land continues to drop, then building will start up again like it did during the 1990s downturn, when there were not a lot of projects but still some new building nonetheless.

[Raybyrnes]

I think you can now add into the mix that builders are able to carry abck their losses that they are taking right now against the gains they had during the boom time and thsy are profitting from the tax loop holes. Addionally the 60% write downs they are taking on the land is back room accounting. What they are doing is selling the land back to the bank at a huge loss but with a contract to repurchase at a future date at or around the price they sold.

[Raybyrnes]

I think you can now add into the mix that builders are able to carry abck their losses that they are taking right now against the gains they had during the boom time and thsy are profitting from the tax loop holes. Addionally the 60% write downs they are taking on the land is back room accounting. What they are doing is selling the land back to the bank at a huge loss but with a contract to repurchase at a future date at or around the price they sold.

[Raybyrnes]

I think you can now add into the mix that builders are able to carry abck their losses that they are taking right now against the gains they had during the boom time and thsy are profitting from the tax loop holes. Addionally the 60% write downs they are taking on the land is back room accounting. What they are doing is selling the land back to the bank at a huge loss but with a contract to repurchase at a future date at or around the price they sold.

[Raybyrnes]

I think you can now add into the mix that builders are able to carry abck their losses that they are taking right now against the gains they had during the boom time and thsy are profitting from the tax loop holes. Addionally the 60% write downs they are taking on the land is back room accounting. What they are doing is selling the land back to the bank at a huge loss but with a contract to repurchase at a future date at or around the price they sold.

[Raybyrnes]

I think you can now add into the mix that builders are able to carry abck their losses that they are taking right now against the gains they had during the boom time and thsy are profitting from the tax loop holes. Addionally the 60% write downs they are taking on the land is back room accounting. What they are doing is selling the land back to the bank at a huge loss but with a contract to repurchase at a future date at or around the price they sold.

[gn]

Bugs,

Thanks for sharing your knowledge with us. A question for you:

When home prices went up during 2002-2005, land prices also went up. I think land prices went up even more dramatically than home prices. Did the builders in Del Sur purchase their land in 2004 ? Or did they buy their land a long time ago (so, their costs is still low) but they just don’t want to lower their sale prices ?

[gn]

Bugs,

Thanks for sharing your knowledge with us. A question for you:

When home prices went up during 2002-2005, land prices also went up. I think land prices went up even more dramatically than home prices. Did the builders in Del Sur purchase their land in 2004 ? Or did they buy their land a long time ago (so, their costs is still low) but they just don’t want to lower their sale prices ?

[gn]

Bugs,

Thanks for sharing your knowledge with us. A question for you:

When home prices went up during 2002-2005, land prices also went up. I think land prices went up even more dramatically than home prices. Did the builders in Del Sur purchase their land in 2004 ? Or did they buy their land a long time ago (so, their costs is still low) but they just don’t want to lower their sale prices ?

[gn]

Bugs,

Thanks for sharing your knowledge with us. A question for you:

When home prices went up during 2002-2005, land prices also went up. I think land prices went up even more dramatically than home prices. Did the builders in Del Sur purchase their land in 2004 ? Or did they buy their land a long time ago (so, their costs is still low) but they just don’t want to lower their sale prices ?

[gn]

Bugs,

Thanks for sharing your knowledge with us. A question for you:

When home prices went up during 2002-2005, land prices also went up. I think land prices went up even more dramatically than home prices. Did the builders in Del Sur purchase their land in 2004 ? Or did they buy their land a long time ago (so, their costs is still low) but they just don’t want to lower their sale prices ?

[gdcox]

Graham
I believe that US builders revalue their land every year so they would not suffer form historic cost illusion.

[gdcox]

Graham
I believe that US builders revalue their land every year so they would not suffer form historic cost illusion.

[gdcox]

Graham
I believe that US builders revalue their land every year so they would not suffer form historic cost illusion.

[gdcox]

Graham
I believe that US builders revalue their land every year so they would not suffer form historic cost illusion.

[Author]

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