It seems safe to say that an increase is no longer in doubt. When that story was written, the BUILDER 100's market share stood at 24 percent. Today it's 36.57 percent, with the top 10 builders capturing nearly 21 percent on their own. Some prognosticators think that the largest 10 will soon account for more than half of all for-sale starts.
Much about the housing industry has changed during those two decades to make those market-share gains possible. Back then, the apartment builders reigned over the BUILDER 100; now they have their own list (see the multifamily chart, page 238). In 1986, the top home builder, Pulte Homes, built 9,500 homes and ranked No. 5 on the list behind four rental companies. Since 2003, the top spot has belonged to D.R. Horton, which crossed the 50,000-unit threshold in 2005.
The path to growth has been paved with mergers and acquisitions, geographic diversification, product innovation, and improved management and financing. The top builders will need to continue to forge ahead in the same manner if they are to reach the goals they've set—and if they are truly to dominate their field.PUMP UP THE VOLUME
In 1985, just four of the top 10 BUILDER 100 companies built primarily single-family housing. In total, the top 10 started 33,625 homes for sale. Fast forward 20 years: D.R. Horton closed 51,383 homes alone last year. What's more, the top 10 grabbed more of the total market, growing their share to 20.97 percent, up from 19.7 percent in 2004.
William Pulte Chairman Pulte Homes
The top 10 builders' consistent ability to capture additional market share begs the question: How much more of the market can they control?
Greg Gieber, a housing analyst at A.G. Edwards, says it's plausible that the top 10 could one day capture 40 percent of the market. UBS analyst Margaret Whelan is even more bullish, estimating that the top 10 will control half of all home building within the next five years.
Not surprisingly, Don Tomnitz, D.R. Horton's president and CEO, thinks it's “clear” that the top 10 builders can achieve a 50 percent market share. His company may well garner nearly 10 percent on its own, as it looks to close 100,000 homes annually by 2010. “I don't see a limitation on a builder's size,” he says.
Some other industry experts doubt the group can dominate half of the market, or more, in a short time frame. “I don't know that anybody is likely to double their volume over the next five years,” says Rick Murray, an analyst at Raymond James and Associates. “That would suggest that they are going to at least maintain the volume growth rates seen over the last several years, during the most extraordinary environment for housing this country has ever seen.”
There are potential market-share gains, however, outside the builders' current comfort zones. “There are three ways we see builders gaining market share—up, out, and over,” says Wachovia Securities analyst Carl Reichardt. “Up, with infill, urban construction; out to the exurbs; and over, to markets like Boise[, Idaho,] and Oklahoma City.”
During the last 20 years, the top 10 builders have grown consistently at the expense of their smaller BUILDER 100 peers. In 1985, they built fewer than one out of every 10 new homes; last year, they constructed more than one out of every five. Builders ranked 11 through 20 constitute the only other group to gain market share over the last two decades.