Back to Paradise for HomeBuilders

WE’RE HEARING it must be great to be a big builder—particularly one of the top 10 publicly traded home builders. They have easy access to capital. They control huge amounts of land and finished lots. And they have buyers pounding on their doors to order new homes.

Life is so good company executives meet regularly to pace sales and determine how much they should raise their prices. The land they’ve been holding and accumulating during the dry time is becoming more valuable each day. And they don’t want to give it away. It can take three to five years to turn raw land into a building site or new community.

On top that, many of the builders have their own mortgage shops and title agencies, etc., to squeeze every buck out of a sale.

Then there’s the local builders—who have been struggling since 2006 to keep their heads above water.

Many have lost the money they borrowed from their friends and relatives. They have to find new sources of capital. Or borrow from local or regional banks that still have bad land and construction loans on their books.

There has been some easing when it comes to getting construction loans, according to David Crowe, the chief economist at the National Association of Home Builders. And the builders kind of sum it this way: “Well now the banks at least call me back.”

When they do a loan, many are kept on a short leash. A bank will provide financing for one or two homes. Once they are sold, the bank renews the credit.

Meanwhile, big builders are being mobbed by investors and potential buyers are putting up deposits to guard against price hikes while they make their decision to buy.

The big builders expect this gravy train to go for a few more years before the playing field levels out.

But right now there is little competition. They have the capital and they have the land. It’s great to be the king.

SHOUT OUT: This week our shout out goes to the Grapeviners, our bulletin posters at mortgagegrapevine.com. Viners are energetic and opinionated, an endless source of funny and ridiculous (and sometimes vulgar or racist) content. This week, though, we have found a thread that is admirable in every way. The only thing we have to add to this is “Amen.” By the way, people in the New York region have noted the blatant hypocrisy of Texas and Oklahoma pols who were against money for Hurricane Sandy relief but want to belly up to the federal bar now that Mother Nature or disaster has targeted their states. To a person, no one here thinks the folks affected in Moore or the people affected in the Texas explosion should be shorted one dime of relief money. We are all for it. We wouldn’t mind if some of those pols got shorted at the ballot box, though!

MOST READ/EMAILED: The most read content on our site this week is Brian’s story of a homebuilder who ran afoul of the Consumer Financial Protection Bureau, allegedly for illegal monkeyshines. And the most emailed piece is…the same one! We’re having a good week this week (see editorial and best blog items below).

READY, STEADY, EDITORIAL: Here’s an advance peak at Mark’s editorial in the Monday print edition of National Mortgage News. Everybody knows how the government can gunk things up when they meddle in things they should leave alone, but sometimes government can come up with innovative programs and get things right. Harvard’s Ash Center has just named 25 such programs, and a few of them were housing related.

BEST BLOG: The fix is in this week, as the judges (us) vote our own blog as the best blog of the week. The builders’ bust and boom is a remarkable piece of business, as no sector got hurt in the bust more than new home sales, which is where builders live and die. Astonishing to find now, that there are not a lot of lots available for building. It does make us wish, however, that these markets wouldn’t crash and burn, swell back up and explode again like a trick cigar. The real estate and mortgage businesses remain as manic as ever. Like people with real manic depression, they prefer the up side of the cycle.

Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.