Page 2 of 2   <      

New-Home Sales Fell Record 26% Last Year

But Nishu Sood, a home building analyst at Deutsche Bank Securities in New York, was more skeptical, saying "conditions out there are still deteriorating."

In good times, builders try to have a three- to four-year supply of land, experts say.

But with slumping sales, land inventory for many builders has shot up "to seven or eight years and sometimes higher," said David Zelman, president of Zelman & Associates, a New York housing research firm.

"They have to downsize their operation and sell off their land," he said. "What builders are doing is exactly the right thing."

In some cases, builders are still buying land in potentially good markets while dumping lots in softer ones, industry experts said.

In most instances, a builder's land portfolio is made up of sites it owns and sites it has options to buy. With optioned land, builders often make a nonrefundable down payment, which can range from 2 to 20 percent of the land cost, industry experts said.

Many builders have given up some optioned land and surrendered deposits to avoid taking a bigger hit by building on the lots at a time of weak consumer demand.

For instance, Toll Brothers, the nation's largest luxury home builder, said that in the past 18 months it has reduced land inventory in response to "weakening conditions in the market," going from 92,000 lots to fewer than 60,000. Most of the reduction involved optioned land.

"Some deals don't pencil out under the current market as they did a couple years ago when they were put under option," spokesman Fred Cooper said.

Locally, the land sell-off has been evident with such builders as Comstock Homebuilding of Reston, a small publicly traded company which recently unloaded 130 condo lots on East Capitol Street NE near the D.C. Armory for $6.2 million and about 50 lots in Culpepper for about $4 million.

"Now some developers are trying to sell off land to lower debt," said Bruce Labovitz, Comstock's chief financial officer. "We felt we had a better opportunity to lighten the load to lower debt and generate cash."

But he said the company still plans to develop 44 lots into townhouses in Ashburn, in Loudoun County.

"We're still in the home-building business," he said. "You have to maintain inventory and be forward-thinking about your inventory."

Selling land has been easier in some parts of the country than in others. For instance, in hard-hit Florida, a lot of builders refuse to cut prices low enough to sell to out-of-town "vulture" investors, said Ronnie Issenberg, a land broker in the Miami office of real estate firm Marcus & Millichap.

"Basically they're still trying to capture some kind of profit," he said.

Richard O. Samit, chief executive of Fraser Forbes of McLean, a major local land broker, said the fairly strong economy in the Washington market is still attracting land buyers, particularly bargain hunters.

"In the past one to two years, the price of land has dropped 10 to 50 percent," he said. "We're starting to see some good deals."

<       2

© 2008 The Washington Post Company