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
Recent Developments
Mar 16, 2023 - Banking Jitters Push Mortgage Rates Lower
- Mortgage rates dipped slightly after the collapse of Silicon Valley Bank, but housing industry watchers are uncertain if lower rates will persist long enough to provide much relief from the affordability issues that have slowed the US housing market, according to Yahoo Finance. Some financial market watchers note that the banking sector's jitters could slow the Federal Reserve’s strategy of taming inflation with rate hikes. Redfin chief economist Daryl Fairweather told Yahoo Finance, “There's still a lot of uncertainty but in the near term, I do expect mortgage rates to drop. And I expect buyers to take advantage of those mortgage rates because we've seen buyers be incredibly sensitive to those interest rates.” However, some industry insiders suggest that rates would need to drop and stay low for a sustained period to lure more buyers into the market.
- Tight existing home inventories are pushing buyers into the new home market, which helped move home builder confidence higher in March, according to the National Association of Home Builders (NAHB). Home builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index (HMI), rose two points to 44 in March 2022 2022, although the HMI remained in bearish territory. Any HMI reading over 50 indicates more builders see conditions as good than poor. While stress in the US financial system pushed mortgage interest rates down, affordability is still a significant roadblock to homeownership for many. The NAHB said a side effect of the increased pressure on regional banks will be a further tightening of acquisition, development, and construction (AD&C) loans for home builders.
- Multifamily developer confidence improved in the fourth quarter of 2022 but remained in negative territory, according to February’s Multifamily Market Survey (MMS) report by the National Association of Home Builders (NAHB). The Multifamily Production Index (MPI) rose two percentage points in Q4 to 34 compared to the third quarter of 2022. The Multifamily Occupancy Index increased by four points to 49 over the same period. An MPI or MOI reading of 50 or more indicates that multifamily production or occupancy, respectively, is growing. While multifamily housing demand is robust, supply is catching up with demand in some markets. The NAHB expects multifamily production will slow significantly over the next two years after rapid growth in 2022. Developers face several challenges, including high regulatory costs, difficulty securing new project financing, and high interest rates.
- New single-family home sales increased 7.2% month over month but declined 19.4% year over year in January 2022, according to the US Department of Commerce. Lower mortgage rates and home prices, combined with builder incentives, helped push new home sales higher in January, according to the National Association of Home Builders. The median new home sales price in January was $427,500, down 8.2% from a month earlier.
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