"Tired of paying rent?"
It's a powerful question for the team here at BUILDER, especially as we wrap up our process on the 33rd annual Builder 100 analysis of the nation's largest home builders. When you think about who that question addresses, and how it may appeal--emotionally, intellectually, and as a self-identifier--the question exposes both the huge challenge and the marvelous opportunity for new residential construction in mid-2016.
We'll get back to the question, but first a few data points on the 2016 Builder 100. As is true with so many things these days, there's the headline and there's the real story. The headline is that top line growth among the Builder 100 and Next 100 companies in 2015 was extraordinary on a year-over-year basis. Taken together, Builder 100 and Next 100 companies settled on 261,347 single-family, for-sale homes in 2015, well over half of new, single-family home sales and completions in the United States counted by the Census. More impressively, those 200 companies collectively quantum-leaped 65% in total volume in 2015 over 2014.
That's the headline. And it's an amazing one. And it's likely that this time next year, we'll again salute extraordinary growth at the headline level. Still, the real story is who are the ones growing? When you look up and down the rankings of the builders, you see that the numbers of a relative few are skewing the overall curve. Some are growing super fast, while, for most of the others, it's slow, plodding, hard-won gains, if there's any growth to show for it at all. By and large, the ones who are growing are the ones who have an answer to the question, “tired of paying the rent?”
They turn inventory. Fast, precisely, and profitably.
That question, "tired of paying rent?" has closely related questions for slightly different population groups, like "tired of having to fix old failing plumbing, or electric, etc., parts of the house?" or "tired of not having the house of your dreams as you come to the end of an accomplished career stretch?"
However, the first question is the most potent, for it speaks to a part of the new home marketplace that we haven't really yet begun to see kick into gear. Think about this. In 2006, if a home buyer wanted a new home, he or she paid—on average--$67,000 more for new than for a resale, about 35%. Now, the barrier to a new home is much, much higher—it’s a $114,000 premium, or 60% more than for an existing home.
Much of that difference is local fees, entitlement costs, regulation, and ordinance compliance. That’s housing’s public relations problem, and it’s not getting better.
Many may indeed be “tired of paying rent.” Few have a strong, sustainable model to respond to that question with, “you can be a homeowner.”