by Calculated Risk on 1/10/2014 06:15:00 PM

From a piece on Meritage Homes by housing economist Tom Lawler:

Meritage over the last year has aggressively added to its land/lot positions over the last two years, and as of the end of September of 2013 Meritage owned or controlled 25,046 lots, up 40.4% from a year earlier and up about 56.5% from two years earlier. As was the case for many home builders last year, “supply-chain” issues increased lot-development timelines at Meritage in many areas of the country, resulting in slower-than-desired community openings and homes built (Supply issues, and not demand, was a major reason why SF housing starts last year fell short of consensus last year). Meritage (and many other builders) dealt with the increased demand and low supply by raising home prices in many areas sharply, resulting in the company’s highest margins since 2006.

Not surprisingly, the combination of increasing mortgage rates and sharply higher home prices led to a substantial slowdown in the pace of new home sales in second half of 2013, and as a result it appears as if builders have responded by “stabilizing” home prices.

As a group, large home builders are planning for a significant increase in housing production/home sales in 2014, and have increased significantly their land/lot positions in anticipation of higher sales/production. For example, lots owned or optioned by 13 large publicly-traded home builders near the end of last year (some as of 9/30, some as of 10/31, and some as of 11/30) were up 19.5% from a year earlier and up almost 30% from two years earlier. With margins as a whole very high and demand at current interest rate and price levels down, builders are unlikely to be able to raise prices much in 2014 after the “incredible” price hikes seen last year.
emphasis added

CR Note: At the beginning of last year, I wrote: "I've heard some builders might be land constrained in 2013 (not enough finished lots in the pipeline)." At Lawler notes, the builders have aggressively acquired land in 2013, and this "supply-chain" issue might be resolved.  Less supply allowed the builders to raise prices aggressively in 2013, but that probably will not happen in 2014.