Residential Building Contractors
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 200,000 residential building contractors in the US build single and multi-family homes (condos and townhouses) and provide remodeling services. The majority of new single-family homes are speculative homes, in which the contractor owns the land and begins construction without a sales contract. Contractors that build speculative homes are known as operative builders. About 78% of residential building contractors are solo operators.
Reliance On Credit Markets
The availability of credit affects potential buyers’ ability to secure a mortgage and contractors’ access to capital.
Reliance On Subcontractors
Residential building contractors rely on subcontractors for a high percentage of work.
Industry size & Structure
The average residential building contractor employs 4-5 workers and generates about $2 million in annual revenue.
- The residential building contractor industry consists of about 200,000 companies that employ about 927,000 workers and generate $342 billion annually.
- An additional 795,000 solo-practitioners generate $61 billion annually.
- Remodelers account for 63% of establishments; single-family general contractors are 29%; operative builders are 6%; and multi-family contractors are 2%.
- While residential construction includes private and public projects, the vast majority of work is in the private sector.
- About 80% of residential building contractors employ fewer than 5 workers and together cover 22% of the industry's payroll. About 20 establishments are very large, employing over 500 workers each and together covering 3% of industry payroll.
- Large companies include D.R. Horton, Pulte Homes, Lennar Corporation, NVR, and KB Home.
Industry Forecast
Residential Building Contractors Industry Growth
Recent Developments
Dec 18, 2024 - Single-Family Starts Rise
- Single-family housing starts grew by 6.4% month-over-month but fell 10.2% year-over-year in November. While housing starts rebounded after hurricanes slowed homebuilding activity in October, some industry observers are concerned that President-elect Trump’s tariff and deportation plans could increase building costs and prompt labor shortages, according to Reuters. Despite Federal Reserve interest rate cuts that began in September, mortgage rates have remained near 7% for much of the year. Mortgage rates tend to track the 10-year US Treasury yields, which have risen amid a robust economy and concerns that some Trump economic policies could exacerbate inflation. The number of building permits issued for single-family, privately-owned housing units increased 0.1% month-over-month but fell 2.7% in November.
- High office vacancies have pushed down property valuations, making office to residential conversions more economical, according to The Wall Street Journal. A housing shortage and a glut of office supply made conversions seem like an obvious solution to both problems. However, until recently, conversion project economics were challenging to pencil out, even for an aging office building. That is changing as plummeting values for older office buildings in second-tier locations are prompting owners to take what they can get, making conversions more economically viable. According to real estate firm CBRE, there have been 73 US conversion projects so far in 2024, up from 63 in all of 2023. There are about 309 office conversions in the planning stages, and about 75% of them are office to residential. In all, about 38,000 housing units are in the pipeline.
- Home builder confidence in the single-family market remained unchanged in December 2024 amid high mortgage rates and home prices, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), held steady at 46, the same as the previous month. Any HMI reading over 50 indicates that more builders see conditions as good than poor. While builders are still concerned about the potential for challenges from high interest rates, elevated construction costs, and lot shortages, they are also hopeful that a new administration in the White House could help reduce regulations.
- Some building contractors are concerned that the incoming Trump administration's promises of tariffs and a tougher stance on immigration could increase their costs and make their labor difficulties worse, according to The Wall Street Journal. Some industry observers suggest Trump’s plan to deport undocumented workers could cause labor shortages. In California, New Jersey, Texas, and Washington, DC, immigrants make up more than half of the construction workforce, according to the Harvard Joint Center for Housing Studies. Nationwide, undocumented workers make up about 13% of the construction sector’s workforce, according to the Pew Research Center. President-elect Trump’s proposed 25% tariffs on goods from Canada and Mexico could drive up construction costs for key inputs, including softwood lumber, cement, gypsum (used to make drywall), and iron and steel. However, some builders are optimistic that Trump’s deregulation plans could reduce construction costs.
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