Publics Ascend
Housing's storms have moderated over the decades the recent downturn notwithstanding. Regulation Q was phased out during the 1980s, and mortgage securitizations came into its own, funneling capital from global financial markets to local U.S. mortgage and housing markets.3 By the mid-1990s, mortgage loans were almost always available; it was a question of the interest rate, which was generally falling, and the loan terms, which were easing.
By the mid-1990s, the fragmented housing industry was ripe for consolidation. Many of the nation's smaller builders had failed or been severely hobbled by the late-1980s real estate bust and savings and loan crisis. Throughout Arizona, California, and the Northeast, it seemed as if the entire real-estate industry was in some stage of bankruptcy or liquidation. A nationwide homebuying market was also being created by the strong migration flows of households from the Northeast and Midwest to the South and West, and from California to the rest of the western U.S. demographically speaking, Florida had become more like New York and Seattle more like San Francisco.
The stock market was beginning its 1990s' bull run, and investors were eager to finance the roll-up of small builders into large, publicly traded businesses. Those builders who were already publicly held had stock that was rising in value and could be offered to smaller builders to entice them to sell out.
Home building acquisitions multiplied. A handful of major deals were made during the first half of the 1990s, but more than 50 were done during the decade's second half. The merger wave spilled over into the first half of the 2000s, with such mega-mergers as Lennar's purchase of US Homes in 2000, Pulte's 2001 purchase of Del Webb, and Beazer's acquisition of Crossman in 2002. In 1990, public builders accounted for fewer than one in ten new home sales nationwide and generated no more than $10 billion in annual revenue.
By 2000, their share of the market had surged to one new home sale in four, and at the peak of the boom in 2006, it had grown to nearly one in three, with sales of some one hundred billion dollars As the publicly traded builders grew larger and their earnings seemed more predictable, their access to credit opened up, accelerating their expansion and tightening their grip on the industry. Construction and land-development loans the money provided by bankers to finance home building expanded three-fold during the first half of the 2000s to nearly half a trillion dollars. Major home builders could also tap the corporate bond market for cash; those borrowings soared from effectively nothing in the mid-1990s to well over $30 billion at the height of the housing boom.
The big builders concentrated on the nation's most lucrative and fastest-growing housing markets. Some two-thirds of their construction was in half a dozen states, including Arizona, California, Florida, Nevada, North Carolina, and Texas. The big firms completely dominate building in these markets; they account for nearly all home building in places such as Orlando, FL, Fresno, CA, and Las Vegas, NV, and over three quarters of house construction in San Diego, CA, Miami, FL, and Phoenix, AZ.
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06102010
1. Interest rates can be included in the contract and are very important
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