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 170,500 residential building contractor firms 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 $2 million in annual revenue.

    • The residential building contractor industry consists of about 170,500 companies that employ about 813,400 workers and generate $342 billion annually. An additional 674,400 solo-practitioners generate $54 billion annually.
    • Remodelers account for 62% of firms; single-family general contractors are 29%; operative builders are 7%; 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 15, 2022 - US Home Sales Drop
                              • New single-family home sales decreased 10.9% month over month and declined 17.6% year over year in September 2022, according to the US Department of Commerce. On a year-to-date basis, new home sales were down 14.3% in the first nine months of 2022 compared to the same period in 2021. According to Freddie Mac, on November 10, 2022, the US weekly average rate on a 30-year fixed mortgage was 7.08%. A year ago, the rate was just over 3%. Industry watchers expect new home sales to remain weak as the Fed uses interest rate hikes to bring down inflation.
                              • US housing affordability fell to its lowest point since the Great Recession in the third quarter of 2022 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 42.2% of new and existing homes sold between July 2022 and the end of September were affordable for households with a median income of $90,000. The third quarter of 2022 marked the second consecutive quarterly record low for housing affordability in more than 10 years. According to the HOI, the median home price in Q3 2022 was $380,000, down from the all-time high of $390,000 set in Q2 2022.
                              • Homebuilders are in a better position to weather a downturn than they were during the housing meltdown of 2007 and 2008, according to The Wall Street Journal. Between 2007 and 2012, the number of US homebuilders dropped by half, according to the National Association of Home Builders (NAHB). Those that survived learned valuable lessons, including a more conservative approach to taking on debt and owning less land. Still, inventories are rising as demand wanes, prompting some builders to cut prices. Some builders are also renting out homes instead of selling them or selling them in bulk to investors.
                              • Some homebuilders are bracing for an even more challenging housing market in 2023, according to CNBC. While rising interest rates have kept many would-be first-time home buyers on the sidelines, some industry insiders suggest affluent buyers may also be hesitating due to diminished confidence in the economy. NAHB Chief Economist Robert Dietz has said 2022 will be the first year since 2011 to see a year-over-year decline in housing starts. In a recent press release, Dietz said,” While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers.”
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