House Building Companies Take Advantage of Slump
The economic meltdown has impacted different industries including the retail, automobile and financial. Not surprisingly, the house building industry suffered one of the worst crises ever when the housing sector collapsed under the weight of the millions of foreclosed properties in the market.
Of course, not all home builders were forced to stop operation and file for bankruptcy. There are those who were able to survive, perhaps because they were the ones who reacted earlier. The same builders are now enjoying the advantage of getting a big share of the recovering market.
For Toll Brothers, the ability to survive housing recessions can be attributed to what it has learned in previous downturns. For instance, when the mortgage industry started collapsing in 2006, the home building giant decided to stop buying land even if the other builders continued to do so. With its decision, Toll was able to save much cash.
The same is true for Lennar Corp, a home builder based in Miami. When signs of impending problems involving home sales were first seen, the company instantly decided to lower their prices. Such decision also allowed them to accumulate cash.
With real estate properties being sold at huge discounts right now, the decision of these two companies paid off. Lennar recently re-purchased a parcel of land in California, which it sold at top price. The company was able to enjoy an 18 percent discount.
On the other hand, Toll has also started snapping up lands but is being extra cautious with their expenditure in case of further slumps in the housing industry.
Analysts believe that another reason why these builders survived is because they financed the bulk of their business operations by taking out loans and not tying it up with certain real estate developments. This allowed them breathing space when the housing market collapsed unlike the other builders who were forced to stop development and resort to fire sales.
According to Credit Suisse, it will not be surprising if these large house building companies enjoy control of the newly-built homes market by over 35 percent, up from 25 percent when the crisis in the housing sector has yet to happen.
