One Sign That the Housing Market Has Hit Bottom

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Toll Brothers' Camwest Deal Is a Sign the Housing Market Has Hit BottomIf you think that it has been a rough few years to own a home, imagine what it's like to be in the business of building new ones. Real estate developers need to buy available land, build attractive housing, and then compete against vacant homes and foreclosures while still selling their properties at a profit.

Well, in a small yet encouraging sign, luxury homebuilder Toll Brothers (TOL) is entering the Seattle market by acquiring privately held homebuilder CamWest Development.

Residential developers snapping up smaller builders will be a common occurrence from now on. There will be a shakeout, and weaker companies -- after years of losses -- will surrender to stronger rivals. This is sector consolidation, and it's perfectly natural after a prolonged downturn.

Toll hasn't been immune to the malaise. It posted huge losses in fiscal 2008 and 2009. It reported a small deficit in 2010, though it was actually a long overdue profit from continuing operations. However, Toll has one of the better balance sheets in the business. Its CEO is also highly quotable as a housing industry visionary. If Toll's buying now, instead of waiting for lower prices down the road, it's a good sign that the Pennsylvania-based developer sees the market bottoming out here.

CamWest is small, but it fits right into Toll's sweet spot of high-end residential properties. CamWest doesn't sell cheap houses. Prices start in the mid $300,000s, with some McMansions fetching over $1 million. CamWest expects to deliver 180 homes in the Seattle area this year, generating $90 million in revenue. In other words, the average CamWest property this year is selling for a healthy $500,000.

Toll wouldn't buy a developer toiling at the low end of the market, so the high prices shouldn't give the market sticker shock.

However, it clearly sees things picking up on the high end to make this gutsy and opportunistic purchase.

Creaky Foundations

We're not out of the woods yet.

The National Association of Realtors reported that a whopping one-third of all existing home sales fell through last month. Contract failures were at a more reasonable 8% rate a year earlier. Whether it's buyers getting cold feet or stingy lenders shaking their heads, there aren't too many buyers closing on deals despite homes fetching their lowest prices in years.

If this is what the market is doing at a time when mortgage rates are also near historic lows, what will happen to home prices once rates inch higher, making properties even less affordable for potential borrowers?

The challenge for developers is to build quality homes at a time when real estate prices are falling at a faster rate than the costs required to construct new digs. It's easy to see why so many homebuilders are calling it quits or looking to be bought out. Toll -- like any smart home buyer these days -- can afford to be picky.

However, seeing Toll dive headfirst into a new market for the company is encouraging. It may be seeing the turnaround that no else is seeing right now.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article.




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ThinkUp70

New homes selling for $300,000 and more? So, who are the nit wits buying at those prices, when there are millions of foreclosed abodes that potential buyers cannt even afford now?

November 29 2011 at 5:16 PM Report abuse +1 rate up rate down Reply
jockmassage26

amen.. another bullshit piece.. its funny in my upscale neighborhood.. there is only 2 houses listed on foreclosed websites and other stuff accessable to realors.. yet im on the HOA.. and i know for a fact that we have twenty foreclosures in our development of 185 homes.. as the HOA gets notice because of fees and being on land title.. plus they just had an article on here last month that said about half of foreclosures in this country are sitting empty and for that matter banks arent even foreclosing until you're about a year behind.. so there is really no way of knowing the state.. but we havent hit bottom.. until we start creating jobs in this country we wont hit bottom

November 29 2011 at 4:55 PM Report abuse +3 rate up rate down Reply
billyjoeobama

The housing market has not hit the bottom if Fannie and Freddie are requesting more money to cover bad loans. Rick you shouldn't write after happy hour.

November 29 2011 at 2:59 PM Report abuse +10 rate up rate down Reply
John

Fire sale most likely, the private builder is probably being bought out for a song. Sharks smell blood in the water, big fish eat little fish. business writers who have no experience in the market do not understand this .

November 29 2011 at 2:46 PM Report abuse +5 rate up rate down Reply
walk1111

Will you folk stop the silly Dem vs Rep comments. This is a serious issue. If you can't contribute some enlightened comments, then just give us a break and be quiet.

November 29 2011 at 2:14 PM Report abuse rate up rate down Reply
2 replies to walk1111's comment
billyjoeobama

Just Walk1111 away _________________________________LMAO

November 29 2011 at 2:56 PM Report abuse +2 rate up rate down Reply
billyjoeobama

Just Wall1111 away !!!!_____________________________LMAO

November 29 2011 at 2:59 PM Report abuse +2 rate up rate down Reply
mrspelosi

Bushy won't you let Somey come out and play dear?

November 29 2011 at 1:59 PM Report abuse +5 rate up rate down Reply
mrspelosi

Me and Maxine Waters are having a contest to see who's more corrupt. If I were wagering I would put the money on myself.

November 29 2011 at 1:48 PM Report abuse +6 rate up rate down Reply
Plummer, Joseph

the bottom of the housing is, when they are free and nobody wants them.

November 29 2011 at 1:44 PM Report abuse +3 rate up rate down Reply
mrspelosi

someoneole
OWS will change the political land scape

Somey never disappoints me when it comes to posting ridiculous comments. Even I have to laugh at that one.
Vandalism and burning buildings does indeed change the landscape dear. Oh my !

November 29 2011 at 1:34 PM Report abuse +3 rate up rate down Reply
mrspelosi

Somey darling, It appears that you are still suffering from your psychotic disorders. How sad for you dear.

Still supporting the occupiers I see. It figures that you would dear. Liberals and bad behavior go hand in hand darling dearest.

Maybe a good therapist can help you.

November 29 2011 at 1:27 PM Report abuse +4 rate up rate down Reply
1 reply to mrspelosi's comment
mrspelosi

Bushy is signing in under different screen names now and voting comments down. How silly. But no big surprise though dear

November 29 2011 at 1:42 PM Report abuse +3 rate up rate down Reply
2 replies to mrspelosi's comment
mrspelosi

Bushy how do you feel when the caretakers come around to put you back in your padded room. Do you find that funny dear? Or do you just pretend that you are Somey and hope they won't notice?

November 29 2011 at 1:49 PM Report abuse +1 rate up rate down
mrspelosi

Bushy when you start drinking the second bottle doesn't it occur to you that you have had enough dear?

November 29 2011 at 1:57 PM Report abuse +2 rate up rate down