Mizel: The dirt on dirt and spec homes

Highlights:

  • MDC Holdings releases its 1st quarter earnings this week.
  • CEO Larry Mizel answers questions from analysts.
  • Analysts ask about spec homes vs buying dirt.

 

By John Rebchook

Larry Mizel, the CEO of MDC, addressed questions about "spec" homes vs. buying "dirt."

Larry Mizel, the CEO of MDC, addressed questions about “spec” homes vs. buying “dirt.”

We’re not building homes to cover overhead; we’re building homes to make a profit,” Larry A. Mizel.

Mizel, chairman and CEO of Denver-based homebuilding giant MDC Holdings Inc., made that comment to an analyst, after the parent of Richmond American Homes released its first-quarter earnings this week.

The analyst was asking Mizel about a strategy of perhaps building fewer “spec” (speculative homes without a buyer) and buying more dirt to build more homes in the future.

The analyst wondered if MDC would be willing to “flex” the number of spec homes to cover overhead.

Mizel said MDC’s strategy is determined market by market and subdivision by subdivision.

He compared it to a store with older inventory.

“You’ve got to get rid of the old stuff to make room for the new stuff,” Mizel said.

Sometimes, dirt has more gross profit potential than the older spec inventory, he said.

“We’re very focused on culling out seasoned product,” Mizel said.

However, MDC will treat “robust” markets such as Colorado differently than less stellar markets such as Phoenix, the Mid-Atlantic, Jacksonville, Florida and Utah, he said.

Another analyst him what is a “normal” amount of spec inventory to carry per community?

“I think normal in homebuilding is a definition that I’m not sure any of us know…I wish I could give you a magic number,” Mizel said.

“What we’re trying to do is deal with the market as it exists today,” Mizel said.

MDC, he said, always strives to “change with changing times.”

Going forward, the market may not be as tumultuous as it has been in recent years.

He said he thinks the market is “entering a long period of time that there’ll be a degree of stability.”

MDC’s stock closed at $27.39 on Wednesday, up 1.97 percent.

Interested in buying a new home? Please visit COhomefinder.com.

Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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