The positive sales momentum in the new-home market carried through the second quarter for public home builders. Underlying market fundamentals and successful execution of strategic initiatives once again allowed public home builders to exceed analyst expectations for revenue and profits per share figures in the quarter.
During the most recent earnings cycle, builders cited the shortage of existing-home inventory as a positive tailwind for demand. Data suggests new-home builders have increased overall market share from historical levels of 10% to 15% to over 30%.
Second-quarter results for builders reflected this shift, with several public builders reporting record levels of home closings and significant year-over-year growth in new-home orders. Builders that have shifted in recent quarters to spec-heavy strategies were successful in capturing demand from buyers in the existing-home market due to the shorter times between sale and move-in than build-to-order homes.
In addition to positive demand conditions, public builders also noted cycle time improvements continued during the second quarter, driven by supply chain improvements, material availability, and better labor conditions. In the land market, after several quarters of measured caution, public builders reported increased interest and activity in land acquisition.
During earnings calls or in press releases on second-quarter performance, executives at public firms maintained optimism for the housing sector and their respective companies, buoyed by strong results through the first two quarters of 2023. Here are some forward-looking thoughts shared by public builders:
“Despite continued higher mortgage rates and inflationary pressures, our net sales orders increased 37% from the prior-year quarter, as the supply of both new and existing homes at affordable price points remains limited and demographics supporting housing demand remain favorable. We are well-positioned with our experienced operators, diverse product offerings, and flexible lot supply and are focused on supplying more homes to meet market demand and maximizing returns and capital efficiency in each of our communities.” —Donald Horton, chairman of the board, D.R. Horton
“Our second-quarter results are consistent with the stabilization we have seen in the current economic environment as well as consistent adherence to our core operating strategies. As it relates to home building, the economic environment has stabilized as customers have adjusted to and accepted higher for longer interest rates, the supply chain chaos has normalized, inventories have remained low, and the supply of housing across the country is in very limited supply. ... As we always do, we are going to remain vigilant as the housing market continues to rebalance the interplay between short supply and strong demand.” —Stuart Miller, executive chairman, Lennar
“Home buyer demand in the second quarter was strong and continued to exceed the expectation we had coming into the year. ... By being more balanced across build-to-order and spec production, we maintain a more consistent cadence of home starts, meet buyer demand more effectively, and we achieved the critical objective of turning our assets in support of higher returns.” —Ryan Marshall, president and CEO, PulteGroup
“We believe that our second quarter performance continues to reflect our focus on change and commitment to our spec inventory. We will look forward to a strong back half of the year as we sell our available specs and take advantage of price increases and reduced incentives in alignment with local market conditions. As cycle times normalize, we expect the higher inventory turns will lead to a consistent backlog conversion in the 80% or greater [range].” —Phillippe Lord, CEO, Meritage Homes
“The long-term outlook for the housing market remains healthy. Market dynamics are characterized by low existing-home inventory and limited availability of new homes at our price points as well as demographics that are particularly favorable for our business, given that we primarily serve the first-time and affordable first move-up segments. … While there are still uncertainties with respect to the economy in the second half of our fiscal year, we have a business model and balance sheet that will allow us to remain flexible in navigating market conditions.” —Jeff Mezger, president and CEO, KB Home
“While Federal Reserve actions [in July] have once again reinforced the need for a highly dynamic approach to managing our business as we navigate continued interest rate volatility and macroeconomic uncertainty, we are well-equipped to continue to do so. The tools we have put in place over the last year and the exceptional cohesion between our home building and financial services team will allow us to remain strongly focused on operating efficiently, investing for future growth, and serving our customers well. We have gained critical advantages by achieving greater scale, simplifying our operations, and embracing innovation to drive both growth opportunity and enhanced bottom line results, and we will continue to leverage those strengths as we move forward.” —Sheryl Palmer, chairman and CEO, Taylor Morrison
“With the first half of the year behind us, we are on track to grow our business and increase our margins and returns in the second half of this year. Buyers are currently looking for affordably priced homes with near-term completions, and we are well-positioned to meet this demand. We have continued to increase our starts given our confidence that the homes we are starting now will carry higher margins and returns. As a result, not only do we expect our deliveries in the second half to exceed first half levels, but our gross margins should continue to improve sequentially due to lower direct costs, improved cycle times, and reduced level of incentives.” —Dale Francescon, co-CEO, Century Communities
“As mortgage rates have stabilized and buyer confidence has improved, the increase in demand that began in January has continued through our second fiscal quarter and into the start of our third quarter. This improvement in demand, combined with our strategy of increasing our supply of spec homes into the spring selling season and our focus on operational efficiency, has resulted in second-quarter performance that well exceeded our guidance. ... We believe the supply-demand imbalance [in the housing market] will continue well into the future, adding to the long-term tailwinds that have supported the housing industry in recent years.” —Douglas Yearley, CEO, Toll Brothers
“The new-home market continues to benefit from a lack of existing-home supply, which has created a real opportunity for home builders to take market share and has helped to stabilize pricing. We believe this dynamic can continue as long as rates stay at these higher levels and existing homeowners opt to stay in their current homes. M.D.C. is well-positioned to take advantage of these conditions thanks to our focus on affordability and our strong presence in some of the best housing markets in the country.” —David Mandarich, president and CEO, M.D.C. Holdings
“We had a very strong second quarter. Despite higher interest rates and uncertain economic conditions, we were very pleased with our new contracts, homes delivered, margins, and income. We believe our industry will continue to benefit from strong fundamentals, including favorable demographic trends and an undersupply of housing. Looking ahead, we are well-positioned to continue delivering strong results.” —Robert Schottenstein, president and CEO, M/I Homes
“We continue to focus on managing construction times and increasing inventory turnover. The ongoing housing supply shortage, coupled with increased demand as the housing market continues to normalize, has resulted in better-than-expected sales activity and operating results across our segments.” —Patrick Zalupski, chairman and CEO, Dream Finders Homes
“Demand trends remain positive, and our performance year to date provides us with significant momentum as we pursue our goals and objectives for 2023. We are proud of our second-quarter results and enter the second half of the year well-positioned with a clear focus on driving growth, improving profitability, and continuing to create long-term value for our shareholders.” —Eric Lipar, chairman and CEO, LGI Homes
“Given the relative strength of the housing market and the steps we took to reduce our costs, we are even more optimistic today about our future growth prospects. Furthermore, we believe that favorable demographics and persistently low supply of homes in the existing-home market will support demand over the long term.” —Ava Hovnanian, president and CEO, Hovnanian Homes
“We are optimistic about the strong fundamentals, both in terms of the supply-demand imbalance, which promises to continue into the foreseeable future, and the positive demographics, bringing new home buyers into the market. We feel confident that our strategic focus on driving increased orders and deliveries, cost management, and improved returns should enable us to navigate any uncertainties in the U.S. economy, while capitalizing on our opportunities to grow both organically and through potential M&A opportunities.” —Doug Bauer, CEO, Tri Pointe Homes
“While home affordability remains quite challenging, home buyer demand has remained surprisingly resilient. We believe the strength of the economy and the lack of existing homes for sale have contributed to this favorable new-home sales environment. From a production perspective, supply chain issues continue to improve, which allowed us to reduce construction cycle times. ... We remain confident in the multiyear outlook for our company and the industry.” —Allan Merrill, CEO, Beazer Homes
“We have continued to see demand for homes, particularly in infill and infill-adjacent locations where we have a strong presence and where there is limited resale competition because existing homeowners are reluctant to sell their homes and forfeit their low interest rate loans. ... With a strong balance sheet and ample lots in infill locations, we believe we are well-positioned to take advantage of continuing strong demand and increase our market share in core markets.” —Jim Brickman, co-founder and CEO, Green Brick Partners
“We believe that housing fundamentals continue to favor the new-home market due to a lack of existing-home inventory, and that Landsea is well-positioned to capitalize on this dynamic. We have strategically expanded into some of the best and fastest growing MSAs in the country with great long-term demand outlooks. In addition, our High-Performance Home series is designed to stand out from the competition and appeal to today’s entry-level and first move-up buyer.” —John Ho, CEO, Landsea Homes
“We are optimistic that our margins will expand throughout the remainder of the year because of improved market conditions and lower lumber costs. Looking forward, we believe that we are in a great position to generate strong returns for our shareholders, thanks to our favorable geographic positioning, our affordable product focus, and our land-light strategy.” —Michael Nieri, president and CEO, United Homes Group
