What is the current state of the homebuilder world?

Housing Shortage: 1.7-7.3MM Housing Units

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The United States is experiencing a housing shortage crisis with an estimated 1.7-7.3 million housing units needed to meet the demand. The shortage is primarily driven by a lack of new home construction in the last decade post the Great Financing Recession. 

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While 5,000 home builders are currently building more than 50 homes a year, the middle tier of builders, who build between 25-500 homes a year, play a significant role in meeting the demand for new housing. Additionally, Public builders are responsible for 50% of all new home sales transactions. 

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In 2021, around 5.5 million homes were sold in the United States, with 800,000 newly built homes. Historically, new home listings account for 10-20% of all homes per year, with an average sale price of $400,000. With that said, new homes in 2023 are accounting for 30%+ of home listings, driven by the fact that the existing home sales have declined because homeowners don’t want to let go of their below 3% interest rate loans. 

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The home building industry operates with margins ranging from 20-25%, with net margins of around 15%. While builders face challenges such as labor shortages, rising material costs, and regulatory hurdles, the housing shortage crisis presents an opportunity for them to capitalize on the growing demand for new homes.

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There are over 8 billion dollars of model home inventory and the majority of those homes are held by the builder. 2 billion of that inventory is held with smaller home builders while the public home builders hold the rest. 

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Builders construct an average of 8,000-10,000 model homes per year, with Lennar alone reportedly having $1.5 billion worth of model homes. These model homes provide potential home buyers with a tangible representation of what their new home could look like. On average, 3-7% of a community is comprised of model homes. 

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In conclusion, the United States is currently facing a housing shortage crisis with millions of housing units needed to meet the demand. The middle tier of builders, who build between 25-500 homes a year, have the opportunity to play a significant role in meeting this demand. While builders face challenges such as labor shortages, rising material costs, and regulatory hurdles, the housing shortage crisis presents an opportunity for them to capitalize on the growing demand for new homes.

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