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 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

                                Recent Developments

                                Dec 1, 2022 - Builder Sentiment Drops for 11th Straight Month
                                • High interest rates, elevated building materials prices, and a lack of affordable inventory pushed home builder sentiment lower in November, according to the National Association of Home Builders (NAHB). Homebuilder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), fell five points to 33 in November 2022 from 38 in October, marking the 11th consecutive monthly decline. Any HMI reading over 50 indicates more builders see conditions as good than poor. Amid weak buyer traffic, 37% of homebuilders reported cutting prices in November compared to 26% who reduced prices in September, according to the NAHB.
                                • US mortgage applications for new home purchases fell 28.6% in October compared to a year earlier, according to the Mortgage Bankers Association (MBA). New home mortgage applications were down 13% from September. The 30-year conforming rate for mortgages hit 6.81, marking the highest rate since 2006. The MBA’s Chief Economist said, “New home purchase activity weakened on a monthly and annualized basis in October, as the sharp jump in mortgage rates to nearly 7% reduced both overall demand and the purchasing power for many prospective buyers.”
                                • During the height of the pandemic, many families sought larger houses to have more space for remote work and school. However, as affordability has become more of an issue, the larger-home trend seems to be reversing, according to NAHB analysis of US Census Bureau data. In the third quarter of 2022, the median single-family home’s floor area dropped to 2,276 square feet from 2,326 square feet in Q3 2021. While home-use trends, including work-from-home, will continue to drive demand for more space, the opposing need for more affordable housing is likely to remain the dominating force in housing size for the next several quarters, according to the NAHB.
                                • In November, real estate brokerage Redfin reported that home buying by investors dropped 30% in the third quarter of 2022 compared to the same period in 2021, according to The Wall Street Journal. The decline signals that higher interest rates and home prices are pushing investors and would-be homeowners to the sidelines of the US housing market. Except for the second quarter of 2020, when the pandemic shut down almost all home purchasing activity, Q3 2022 was the weakest quarter for investor home purchases since the subprime housing crisis.
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