Why homebuilders and lot sellers no longer price risk the same way

Stagflation is an economic rule-breaker. It delivers the double whammy of a market downturn and high prices, both at once. The U.S. homebuilding industry’s mounting financial pressures have similarly coalesced into a riptide that grows harder to paddle against with each passing quarter.Builders are selling homes more slowly, sacrificing margins to maintain sales volume, and finding that many of the land deals needed to replenish their pipelines no longer deliver acceptable returns and, in an increasing number of cases, barely yield positive net margins.Yet the land developers supplying finished lots to builders have not faced the same level of financial pressure. Tony Avila, CEO of Builder Advisor Group and Avila Real Estate Capital, says that developers borrowing from his firm generally continue to earn higher margins than the homebuilders who buy their lots, and that the scarcity of finished lots in many markets continues to give sellers room to resist price cuts.“Today there are more homebuilders than there are vacant developed lots in most markets,” Avila said in a November 2 interview with HousingWire TBD. “That makes it a lot sellers’ market as opposed to a lot buyers’ market...