Some of the region’s biggest resi developers are walking away from North Texas land deals — a major turning point for the booming market.
D.R. Horton, the largest U.S. homebuilder, last quarter wrote off $34 million in costs related to land and home-lot contracts it terminated or expects to terminate, the Dallas Morning News reported. The Arlington-based company experienced a 15 percent year-over-year decrease in sales orders during that time. On top of that, its cancellation rate went from 24 to 32 percent between the second and third quarters of this year.
Until recently, builders were on a hot pace with housing starts throughout the region, but sky-high mortgage rates and diminished demand have left them struggling to unload their inventories by year-end. Now, big-names like D.R. Horton and Taylor Morrison are signaling that they don’t plan to buy land any time soon.
Arizona-based Taylor Morrison, which oversees about 80,000 lots nationwide, spent a mere $102 million on land acquisition last quarter — a 70 percent reduction from Q3 2021 and its lowest level since 2016.
“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,” CEO Sheryl Palmer said in a call with investors Oct. 26.
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Jim Brickman, co-founder and CEO of Plano-based Green Brick Partners, echoed a similar sentiment in a third-quarter earnings call Nov. 3.
“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,” he said. “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.”
“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’s COO Jed Dolson said the company expects to cut land development spending by about 45 percent in 2023.
“The land market, when it comes to housing and residential, is definitely in a holding pattern of uncertainty,” says Carter Kendall, a senior exec with CBRE Group’s land investment sales team in Dallas. “The demand for finished and undeveloped lots is the lowest I’ve seen in a long time.”
Homebuilders and developers throughout the metroplex — regardless of size — have turned away from signing new contracts, Kendall said. Meanwhile, the few that are even considering new contracts are only doing so because they expect the market to improve by the time they would actually start building, 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.
— Maddy Sperling