As the housing market improves, small and mid-sized builders are finding it harder to acquire and develop lots while their larger brethren are buying up land that they don’t intend to use for two or three years.
The Los Angeles-based builder delivered 1,485 homes in the first quarter. As of Feb. 28, it owned or controlled 47,300 lots.
Over the past three years, surveys by the National Association of Home Builders show more and more members are raising concerns about the shortage of lots and the difficulty of getting acquisition, development and construction loans.
In the last NAHB survey, 48% of respondents complained about the lack of buildable lots.
The regional and smaller builders are having a hard time getting lots because they are being outbid by national builders, according to Mark Vitner, a senior economist at Wells Fargo Securities.
“There is a split in the housing market today,” he said. Due to their access to capital and credit, the big national homebuilders are getting lots of order and scooping up lots.
A monthly survey of builder confidence has been slipping in the past few months, despite rising sales and housing starts.
Most of the respondents to NAHB/Wells Fargo confidence survey are small builders, said Stuart Miller, chief executive of Lennar Corp.
“Their lower confidence reflects their limited access to capital and in turn a limited access to land,” Miller said during an earnings conference call. “We have excellent land position in a constrained land market.”
The Miami-based builder began acquiring land in 2009 and it has enough lots for projected deliveries through 2014.
Lennar is also using its capital to tie up land for future growth. “We are pursuing land opportunities for 2015 and beyond,” the CEO said.
Lennar sold 3,174 homes in the first quarter, up 28% from a year ago. The average price was $269,000.
NAHB director of economic services Stephen Melman noted that some of the large builders have a 3-year to 5-year supply of lots. “Whereas, the small builders can’t maximize production to meet demand,” he said.
Melman also noted that first-time buyers have not returned to the new home market due to tight credit. And the builders are catering to trade-up buyers. They are not building entry level homes.
“It is a recovery in slow motion and a lot of the pieces are not working yet,” he said. Builders are also facing shortages of skilled labor, rising costs of building materials “along with a credit access problem for both first-time buyers and builders.”
