New Housing For-Sale Builders
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 11,800 new housing for-sale builders in the US build single-family and multi-family homes on land that is owned or controlled by the builder. New housing for-sale builders are also known as merchant builders, production builders, or operative builders. Large firms may also provide related services, such as mortgage financing or title services.
High Cost of Land Investment
The new home building industry is capital intensive and requires significant upfront investment in land, the value of which can vary depending on market conditions.
Dependence on Subcontractors
New home construction is highly dependent on subcontractors, with most firms directly employing a limited number of workers to oversee subcontracting activity.
Industry size & Structure
The average new housing builder operates out of a single location, employs about 5 workers, and generates nearly $13 million annually.
- The new housing building industry consists of about 11,800 firms that employ 53,500 workers and generate about $150 billion annually.
- The industry is concentrated at the top and fragmented at the bottom; the top 50 companies account for 55% of industry revenue.
- Large firms include D.R. Horton, Lennar, and Pulte Group.
- Most of the new homes built in the US are “built for sale” or built by a developer that owns the land.
Industry Forecast
New Housing For-Sale Builders Industry Growth
Recent Developments
Sep 25, 2024 - Federal Reserve Cuts Interest Rates
- At its meeting in September, the Federal Reserve voted to reduce interest rates by half a percentage point, which would put the benchmark federal funds rate between 4.75% and 5%, according to The Wall Street Journal. Projections of fed officials’ moves suggest another four quarter-point cuts will come next year, which would bring the federal funds rate down to 3.5% by the end of 2025. However, it’s unclear to what extent September’s cut will affect housing demand. Mortgage applications were flat year-over-year in September. Meanwhile, for the week ending September 19, the average fixed-rate 30-year mortgage rate was 6.09%, down from 7.19% a year earlier, according to Freddie Mac. Even as mortgage rates have dropped, high home prices and other costs, including homeowner insurance, continue to weigh on affordability.
- The recent What Home Buyers Really Want Study by the National Association of Home Builders highlights kitchen and bathroom features most attractive to prospective home buyers. Study participants were given a list of 28 kitchen and 18 bathroom features and were asked to rate each as essential, desirable, indifferent, or do not want. Top kitchen features include walk-in pantries (80% of buyers ranking desirable or essential), table space for eating (80%), double sinks (78%), drinking water filtration (75%), pull-out shelves (74%), and central island (74%). The leading bathroom features include both shower and tub in the primary bath (78% of buyers ranking desirable or essential), linen closet in the primary bath (76%), private toilet compartment in primary bath (70%), double vanity in primary bath (67%), white toilet tub and sink (67%), ceramic wall tiles (65%), and granite vanity (64%).
- The number of building permits issued for single-family, privately-owned housing units, a demand driver for building inspection services, increased 2.8% month-over-month but declined 0.5% year-over-year in August 2024. Single-family housing starts grew by 15.8% month-over-month and increased 5.2% year-over-year in August. Single-family housing completions dropped 5.6% month-over-month but grew 8.4% year-over-year in August. The August rise in housing starts was helped by moderating interest rates. However, builders still face supply-side headwinds, including labor and lot shortages and stubbornly high prices for some types of building materials, according to the National Association of Home Builders (NAHB).
- Home builder confidence in the single-family market improved in September amid moderating mortgage interest rates, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), rose two points to 41 in July 2024. Any HMI reading over 50 indicates that more builders see conditions as good than poor. September’s gain in the HMI followed four consecutive months of declines. The HMI survey also showed that 32% of builders have reduced home prices to lure potential buyers off the sidelines, although the average price reduction of 5% was the lowest since July 2022. However, while the Fed’s recent rate cut will reduce the cost of land development and construction loans, builders are seeing increased competition from existing home listings in some markets.
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