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 Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 16,000 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 8 workers, and generates about $9 million annually.

    • The new housing building industry consists of about 16,000 firms that employ over 130,000 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

                                Coronavirus Update

                                Apr 29, 2022 - Home Builders Court Wealthy Investors
                                • In 2021, the vast majority of new homes were sold to individual buyers, but as interest rates and home prices push higher, builders are increasingly catering to investors who are buying homes in bulk, according to The Wall Street Journal. More than 25% of the homes purchased by professional rental investors in the fourth quarter of 2021 were newly-built homes, according to a recent report by John Burns Real Estate Consulting LLC and the National Rental Home Council. In the third quarter of 2019, only 3% of homes bought by investors were new construction. The trend may accelerate as the lack of affordability becomes an issue for more potential individual buyers.
                                • Russia’s invasion of Ukraine is disrupting global wood product trade flows, especially in Europe. According to Wood Resources International, Russia, Belarus, and Ukraine exported 34 million tons of lumber in 2021, and 25% of that volume was exported to countries that have sanctioned Russia and Belarus. Europe’s timber imports from Russia and Belarus accounted for nearly 10% of the continent’s consumption in 2021. Wood certification organizations Forest Stewardship Council (FSC) and Programme for the Endorsement of Forest Certification (PEFC) have designated all timber from Russia and Belarus “conflict timber,” which cannot be used to manufacture certified products, including lumber and plywood. Even after peace returns to Europe, timber trade flows have likely been permanently altered.
                                • Even before Russia invaded Ukraine, lumber markets were highly volatile. Lumber traded at $912 per thousand board feet on April 28, down from the record high of $1,670 per thousand board feet on May 7, 2021, but up from $454 per thousand board feet on September 15. Lumber prices have oscillated widely during the coronavirus pandemic, falling from the mid-$400s in January 2020 to $264 in late April before surging to $948 in September. The price then dropped to $495 in late October 2020 before starting a fairly steady climb to the record set on May 7, 2021.
                                • The number of building permits issued for privately-owned housing units increased 0.4% month over month and 6.7% year over year in March 2022. Housing starts increased 0.3% month over month and 3.9% year over year in March. Housing completions decreased 4.5% month over month and 13% year over year in March. New single-family home sales fell 8.6% month over month and declined 12.6% year over year in March.
                                • Homebuilder sentiment, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, decreased to 77 in April 2022 from 79 in March, marking the fourth consecutive monthly decline. Higher materials costs and rapidly rising interest rates are making housing less affordable, which is weighing on builder confidence. Builders report that sales traffic and current sales conditions are at their lowest level since summer 2021 as higher mortgage rates and supply chain disruptions have unsettled the US housing market, especially for potential first-time homebuyers.
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