With home building operations in 77 markets across 26 states—which generated 51,383 new homes last year—D.R. Horton can get a good read on the health of the housing market. “There are pockets of weakness. For certain, 2006 will be a more challenging year for the industry and for D.R. Horton,” says Don Tomnitz, the company's president and CEO. “But I don't see overall weakness at all. I see just the opposite, with a strong economy and strong job growth.”
These observations come from one of the top executives of a company that took full advantage of 2005's extraordinary housing market to accomplish the high-profile goal of delivering 50,000 homes in a year. D.R. Horton's performance set it atop the BUILDER 100 for the fourth consecutive year, and the company is already well on its way to growing that number to 58,000 this year, slowdown or not.
Many of Tomnitz's BUILDER 100 peers also had high-volume growth in 2005—albeit at slightly lower levels—and share his expectations for 2006. Last year they capitalized on a boom that lasted longer than expected to once again outperform the averages of a home building industry growing at a rapid clip.
The BUILDER 100 drove much of that growth. As a group, the 100 largest home builders closed 504,670 units, an increase of 55,819 units—or 12.4 percent—in 2005. That performance led to a substantial market share gain, too: Our list captured 36.57 percent of the for-sale housing market last year, up from 35.18 percent a year ago.
For many of the builders, tried-and-true strategies coupled with continued strength in buyer demand accounted for substantial growth. Some started new divisions in hot markets, while others expanded product offerings to capture additional buyers. Still others bought their way bigger, acquiring a number of BUILDER 100 and Next 100 companies. Some may have to shift their approaches as the slowdown shakes out, with the largest among them ready to use their well-capitalized machines to grow even more.oMAKING IT HAPPEN
For Fieldstone Communities and Vantage/ Raylee Homes, growth didn't come overnight—though the jumps they made in 2005 may make it seem that way. Like D.R. Horton, both companies fulfilled plans made years earlier to increase their volume. Fieldstone developed a five-year plan in early 2002 that called for building between 1,500 and 1,600 units by the end of 2006, recalls Frank Foster, the company's president. Fieldstone hit the goal a year early, delivering 1,622 homes in 2005, a 131 percent jump over its 2004 production that landed it back on the BUILDER 100 this year.
Vantage/Raylee also made the leap from the Next 100 to the main list this year by nearly doubling its closings. It grew top-line revenue by 118 percent.
Geographic expansion, long a hallmark of BUILDER 100 growth, helped the company achieve its goals. Co-presidents Vincent Pizzonia and Scott Grady had made headway in their home market of Albuquerque, N.M., gaining quickly on D.R. Horton, the area's No. 1 builder. In 2004, they opened new offices in Phoenix and Houston. Both divisions grew quickly in 2005, with 147 closings in Phoenix, up from just six in 2004, and 119 in Houston, an increase from 23 the year before. The company's goal is to double the unit volume in the two markets again this year. They're not stopping there: They're also ramping up production in Dallas, where they bought their first lots last year, and looking at entering San Antonio.
They'll have plenty of company. Florida was the hot state for startups and acquisitions in 2004, but now Texas takes that title. Margins have never been easy to make in the Lone Star State, but land is plentiful, and entitlement processes are much less complicated than in other states, making Texas a good bet for builders looking to grow.
BIG JUMP: Seven of the top 10 builders here appeared on last year's Next 100 list. Does this prove that it's easier to post big percentage gains from a lower starting level? Don't tell that to John Laing Homes or Pasquinelli Construction Co., both of which climbed eight spots higher on the BUILDER 100.
Many of Vantage/Raylee's peers are also looking to grow in San Antonio. Standard Pacific Corp. and Corky McMillin Cos. both acquired other builders in the market during 2005, and Fieldstone, Crosswinds Communities, and Kimball Hill Homes recently opened shop there, too.