Fear and loathing. That pretty much sums up how both many small builders and most building product manufacturers feel about the nation’s top 100 builders. Small builders, especially those in the major housing markets where big builders are most active, complain that the big boys outbid them for land then undercut them on housing prices. It’s not fair, they say. Building product manufacturers complain that the big boys beat them down on price then specify low margin, low end product. And they say that’s not fair.
Whether they play fair or not, the big builders are getting much bigger. This year, according to Hanley Wood Market Intelligence, they will account for about 50% of the almost 500,000 new home closings. That’s up from about 40% in 2005. Wall Street’s noticed. Share prices of the publicly held homebuilders have nearly tripled in the last 12 months, outperforming the S&P 500 by a factor of about 6x.
So loathe the big builders if you must, but if you’re a small builder you better figure out a way to compete with them and if you’re a building product manufacturer you better figure out how to sell to them more effectively. Period.