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 188,800 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 188,800 companies that employ about 920,900 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
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Nov 14, 2023 - Residential Construction Spending Posts Slower Growth
                              • Residential construction spending has posted steady growth in 2023, but as of midyear, spending decreased compared to a year earlier as high interest rates and home prices have cooled demand. So far in 2023, US housing starts, housing permits, and new home sales have often been volatile month-to-month. By midyear, housing starts and housing permits were down significantly compared to the same period a year earlier. However, high interest rates have disincentivized homeowners with a low mortgage rate from listing their homes, which has shifted demand to the new home market. In the third quarter, US new single-family home sales increased significantly compared to the same time a year earlier. By Q3 2023, producer prices for softwood lumber were down substantially from year-earlier levels, and wage growth for residential builders increased slightly over the same period. Industry employment was flat.
                              • In the third quarter of 2023, US housing affordability fell to its lowest point since the National Association of Home Builders (NAHB) began tracking the metric in 2012. Many would-be buyers are priced out of the market amid rising mortgage rates, inflation, low housing inventory, and high home prices. According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI), only 37.4% of new and existing homes sold between July 2023 and the end of September were affordable for households with a median income of $96,300. According to the HOI, the median home price in Q3 2023 was unchanged from Q2 at $388,000, but average mortgage rates rose to 7.13% from 6.59% over the same period.
                              • Elevated mortgage rates, record-high home prices, and low inventory of homes to buy are expected to make 2023 one of the weakest years for home sales since the housing crash and recession of the late 2000s, according to The Wall Street Journal. Existing- home sales are projected to be about 4.1 million in 2023, which would be the lowest number of sales since 2008, according to Redfin. In mid-October, the average 3-year fixed mortgage rate was 7.57%, marking the highest rates in 23 years, according to Freddie Mac. Homeowners who are locked in a low rate are reluctant to sell, which has reduced inventories of previously owned homes. According to a September survey by Fannie Mae, only 16% of respondents said it was a good time to buy a home.
                              • Headwinds to residential construction spending are mounting, according to FMI’s fourth-quarter 2023 North American Engineering and Construction Outlook. Single-family construction spending is expected to decline by 13% in 2023 compared to 2022 as high interest rates hinder demand. Construction spending on single-family housing is forecast to drop another 10% in 2024 and 1% in 2025 before returning to 4% and 6% growth in 2026 and 2027, respectively. While construction spending on multifamily projects is projected to rise 18% in 2023, vacancy rates have increased while rents are falling, and 1 million units currently in development will further increase apartment supplies. In 2024, multifamily construction spending is forecast to drop by 7%. Multifamily spending will decline another 13% in 2025 and 2% in 2026 before returning to growth in 2027 with a rise of 6%.
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