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 11,600 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 about $13 million annually.

    • The new housing building industry consists of about 11,600 firms that employ 52,900 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
                                Source: Vertical IQ and Inforum

                                Recent Developments

                                Sep 26, 2023 - Mortgage Applications Rise
                                • US mortgage applications for new home purchases rose 20.6% in August compared to a year earlier, according to the Mortgage Bankers Association (MBA). New home mortgage applications were up 4% in August over July. The MBA’s Deputy Chief Economist Joel Kan said, “There was strong purchase demand in August for newly constructed homes, as existing for-sale inventory remains low with most homeowners locked into lower mortgage rates and unwilling to give those rates up in this higher rate market.” New home sales are a driver of paint and wallcovering demand.
                                • Home builder confidence declined in September as high interest rates and materials and labor shortages undermine buyer purchasing power, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), fell five points to 45 in September 2022, which followed a six-point drop in August. Any HMI reading over 50 indicates that more builders see conditions as good than poor. The HMI’s September decline was the first drop in five months. The NAHB said mortgage rates above 7% are hurting housing affordability. Supply-side challenges - including shortages of workers, materials, and available lots – are also contributing to higher home prices.
                                • A key measure of US home prices, the S&P CoreLogic Case-Shiller National Home Price Index, increased 1% year-over-year in July after remaining steady in June, according to The Wall Street Journal. On a monthly basis, home prices were up 0.6% compared to June. Home affordability is at its lowest point in decades amid rising mortgage rates. Homeowners who locked in a low interest rate before lending costs began rising are reluctant to put their homes on the market and buy a new home at a higher rate, which has tightened inventories further and contributed to higher home prices.
                                • Natural disasters are pushing up home insurance prices, and the higher costs are starting to slow home sales, according to The Wall Street Journal. Floods, wildfires, and hurricanes have led to underwriting losses for home insurers, and they’re responding by raising their rates or leaving disaster-prone regions altogether. In Florida, the average annual cost of home insurance has tripled in just a few years, rising from $1,988 in 2019 to $6,000. Costs for flood insurance, which is mandatory in some parts of Florida, are rising even faster. The pandemic-era trend of seeking more space and better affordability led to population growth in several disaster-prone areas. According to a study by Redfin, regions of the country with the most severe risks for wildfires and flooding have seen a net rise in population in the wake of the pandemic.
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