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 Most homebuilders had shied away from stockpiling land in the past
few years as a choppy economic recovery offered little clarity on
when demand would stabilize.
But that may be about to change.
The Ryland Group Inc <RYL.N> and Standard Pacific Corp <SPF.N>
merger announced earlier this week – the first big deal since
PulteGroup Inc's <PHM.N> buyout of Centex in 2009 – is a sign of
things to come.
Also, U.S. permits for future home construction surged to a near
eight-year high in May, suggesting the recovery in the housing
market and the broader economy is gaining momentum.
A Federal Reserve rate increase could push companies to close deals
quickly as borrowing will become more expensive.
Mid-cap builders that went public recently such as Tri Pointe Homes
Inc <TPH.N>, Taylor Morrison Home Corp <TMHC.N> and William Lyon
Homes <WLH.N> are expected to be more active dealmakers than their
larger peers.
"The smaller builders where you do have some private equity
ownership, limited trading volumes and the desire to grow, that's
where you are more likely to see mergers," said Holger Boerner, a
portfolio manager at Fidelity Investments.
Fidelity owns shares in several homebuilders including D.R. Horton
Inc <DHI.N> and PulteGroup, the No.1 and No.3 U.S. homebuilders,
respectively.
Housing experts said favored buyouts will be ones that offer access
to customers of varied age groups and to sizeable land assets,
especially in hotbeds such as California, Texas, and North and South
Carolina.
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The newly public players could look to buy builders in new regional
markets, said Alex Barron, senior research analyst at Texas-based
Housing Research Center LLC.
Taylor Morrison might look to southeastern states. William Lyon,
which currently builds only in the west coast, could head east or
even to Texas, Barron said.
Shares of Tri Pointe, Taylor Morrison and William Lyon have fallen
7.4 percent on average in the past year, compared with a 10 percent
rise in those of the top three builders, D.R. Horton, PulteGroup and
Lennar Corp <LEN.N>.
The bigger companies already have a sizable presence in pivotal
markets are less likely to indulge in dealmaking, housing experts
said.
Taylor Morrison, PulteGroup and Lennar declined to comment, while
William Lyon, Tri Pointe and D.R. Horton did not respond to emails
seeking comment.
(Editing by Sweta Singh and Sayantani Ghosh)
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