Advertisement
This is member-exclusive content
icon/ui/info filled

businessReal Estate

‘A holding pattern of uncertainty’: Homebuilders walk away from new land deals

Many of the nation’s largest builders are calling it quits on buying more land.

With many buyers on the sidelines due to affordability challenges and rising mortgage rates, builders have seen a dramatic slowdown in the pace of sales and have dramatically slowed down construction starts, leaving builders with more land than they plan to build on in the near future.

That has brought new land acquisitions by builders in Dallas-Fort Worth and throughout the U.S. to a screeching halt over the past few months, with many public builders telling investors during earnings calls that they have walked away from land contracts, paying millions in fees to do so.

Arlington-based D.R. Horton, the largest U.S. homebuilder, wrote off $34 million in costs last quarter related to land and home-lot contracts it terminated or expects to terminate. The company saw a 15% year-over-year decrease in sales orders last quarter to 13,582 homes, and its cancellation rate rose to 32% last quarter from 24% in the previous quarter.

Advertisement

Green Brick Partners, a Plano-based builder that builds in D-FW and Atlanta through brands including Trophy Signature Homes, Southgate Homes and CB Jeni, significantly slowed down land acquisitions until the market adjusts.

D-FW Real Estate News

Get the latest real estate news you need to know.

Or with:

“We have no need to buy land to grow our business and don’t plan to buy much or any land in Q4 2022 or well into 2023,” co-founder and CEO Jim Brickman said in a third-quarter earnings call Nov. 3. “While it is difficult to accurately predict what will happen in the short term, our long-term view on the immense imbalance of housing supply and demand remains intact.

Advertisement

“A decade-long underproduction of housing has resulted in a gap of approximately 4 million housing units that will take many years to adjust, if not another decade. Recent and expected future reductions in housing starts are likely to exaggerate the housing shortage.”

Green Brick also plans to postpone the next phase of land development for some communities due to the volatility in the market and slower sales, said Jed Dolson, chief operating officer. He said the company expects to pull back land and lot development spending about 45% next year compared with 2022.

Arizona-based Taylor Morrison, which owns or controls about 80,000 lots nationwide, is reassessing every deal before closing. It reduced spending on new land 70% year over year in the third quarter to $102 million, its lowest level since 2016.

Advertisement

“We have a really good land bank, so we don’t feel the pressure to get any deal to the finish line that doesn’t make sense,” Taylor Morrison chairman and CEO Sheryl Palmer said in a call with investors Oct. 26. “There will be an opportunity to invest at the right time.”

Houses under construction in Woodcreek neighborhood, the largest housing development in Fate.
Houses under construction in Woodcreek neighborhood, the largest housing development in Fate.(Shafkat Anowar / Staff Photographer)

Carter Kendall, a senior vice president with CBRE Group’s land investment sales team in Dallas, said homebuilders and developers throughout D-FW — large and small — have turned away from signing new contracts.

“The land market, when it comes to housing and residential, is definitely in a holding pattern of uncertainty,” Kendall said. “The demand for finished and undeveloped lots is the lowest I’ve seen in a long time.”

Kendall said some builders are still considering deals because they expect the market to improve by the time they would actually start building on the lots they’re buying, which could be years out.

“I have heard from a couple builders that say if the right deal presents itself, maybe with some sort of correction in land price or lot price, they’d definitely consider it,” he said.

Note: This story was updated Monday morning to change Carter Kendall’s title to a senior vice president of CBRE Group’s land investment sales team in Dallas.

Read more stories about D-FW real estate
View More