Profits coming in sales volume


first_img AD Quality Auto 360p 720p 1080p Top articles1/5READ MOREWalnut’s Malik Khouzam voted Southern California Boys Athlete of the Week At Miami-based Lennar Corp., one of the nation’s largest publicly traded home builders, annual net profits soared about 38 percent in 2003 and 26 percent in 2004. Dallas-based Centex Corp., another builder, reported net increases of 49 percent and 22 percent for the same years. “Home builders are probably a good barometer for the strength of the housing market,” said Andy Sands, executive vice president and managing director for Los Angeles-based ING Realty Partners, which invests in new condominium complexes, condo conversions and single-family housing. “They’ve got so much product around the country that they’re seeing a statistically significant number of transactions.” But for some, the money is now to be made on volume of sales, not on growing profit margins. According to the National Association of Home Builders, the average profit margin on a new house dropped to 9.8 percent in 2004 from 12 percent in 2002. The major reasons for the decline were an increase in the price of land and construction and materials costs as a percentage of the price of a home. The Southland’s booming housing market has been a boon to home builders, finance companies and real estate agents, but none will claim to have received an unfair advantage. If anything, many believe profits have become even harder to come by as competition in those professions has grown more intense. The median price of a California home – the price at which half of homes sold for more and half for less – rose a combined 96.4 percent between September 2001 and September 2005, according to the California Association of Realtors. The increase from $276,960 to $543,980 is equivalent to average appreciation of 18.4 percent per year. To be sure, the rise has led to increased profits for practically all associated with the housing industry. The results came from a survey of the 10 largest builders in each of the country’s 50 largest metropolitan areas. “The share made up by the lot price is increasing over time,” said Rose Quint, director of survey analysis for the NAHB, based in Washington, D.C. “We know that because land prices are going up all across the country.” Back in 1949, land accounted for just 11 percent of a home’s selling price. Last year, it was 26 percent, up from 23.5 percent in 2002. Construction costs rose, as well – although not as much – to 51.7 percent last year from 50.7 percent in 2002. “There’s only so much they can raise prices,” Sands said. “Builders are looking for that land, and they’re having to pay more to get it.” Although exact figures are difficult to pinpoint because of sharp differences between urban and rural properties, insiders say land values have risen dramatically in Southern California, as commercial and residential developers battle for a shrinking number of usable properties. In coastal and urban communities, such as the West San Fernando Valley and Long Beach, potential urban infill land prices have soared in just the last 12 months. Even in the San Gabriel Valley, long a low-density, suburban region, builders are tightly competing for suitable properties. Brad Talt, a Pasadena-based partner at developer Jacobsen Family Holdings LLC, said in one city he has seen land values rise 67 percent. “The last six months, we’re really getting choked,” Talt said. Like many in the industry, Sands views the Southland’s high home prices as a basic function of demand far outstripping supply. Los Angeles County alone adds about 170,000 residents each year, according to CAR, roughly 50,000 new households. But the rate of new and infill construction is much lower. Still, as the red-hot housing market cools – ever so slightly – Sands cautions against riskier investments such as condo conversions and even new condo construction. “The better question, really, is are we building the right product for the demand?” he said. “By the time you’re ready to hire a contractor and build it, who knows where the costs will be?” 160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set!last_img

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