Despite volatility in the market due to mortgage rates in the second quarter, public builders reported strong results, characterized by strong year-over-year gains in revenue, closings, and orders.
Publics remained optimistic about the housing market, with the same underlying fundamentals present in recent quarters—including limited resale supply, the undersupply of housing, and the increasing number of households forming among millennials and Gen Z buyers—supporting positive outlooks. With impending Fed rate cuts and a new operating environment following the effective date of the NAR settlement, builders are facing several unknowns in the latter half of the year.
Rising land and input costs are creating challenges for home builders, but land-light approaches and partnerships with third-party land developers are allowing many public builders to limit risk and maintain progress towards growth targets.
Executives shared a range of perspectives, highlighting the competitive advantages of large public builders in the current operating environment and sharing how land strategies are mitigating risk, during the recent earnings reporting period:
“Our results and position reflect our experienced teams, industry-leading market share, broad geographic footprint, and focus on affordable product offerings. All of these are key components of our operating platform that sustain our ability to produce consistent returns, growth, and cash flow, while continuing to aggregate market share. We have significant financial flexibility and we plan to maintain our disciplined approach to capital allocation by providing consistently high returns to our shareholders to enhance the long-term value of our company.” —Paul Romanowski, president and CEO, D.R. Horton
“We are intensifying our focus on producing affordable and attainable products across our platform. Land is more expensive. Impact fees are getting more expensive, and labor and material costs have been rising as well. We can only reduce the cost of housing by increasing productivity through efficiencies of our operation. Our focus has been on doing just that. We are building more consistent products that we call our core products that are carefully value engineered, and we are using our start pace to refine and engineer the production cycle, enabling us to reduce cycle time and to work with our trade partners to build efficiencies in logistics and the way that we run our community production.” —Stuart Miller, executive chairman and co-CEO, Lennar
“During the first half of 2024, traffic to our communities was good and absorption pace ran slightly above historic norms. So, I feel good about our opportunities in the back half of the year. To the degree that the Fed actually cuts interest rates in the coming months, I think that will provide a powerful tailwind both financially and psychologically as we enter 2025.” —Ryan Marshall, president and CEO, PulteGroup
“Our second quarter 2024 results demonstrate that our new focus on quick turning move-in ready inventory is leading to strengthen our absorption pace, home closing volume, and home closing gross margin. With our strong balance sheet, we can continue to execute our strategic evolution and create long-term value by investing in our growth on the path to 20,000 units.” —Phillippe Lord, CEO, Meritage Homes
“Longer-term housing market conditions remain favorable, supported by an undersupply of new and resale homes, solid employment, wage growth, favorable demographics, and rising household formations. However, during the second quarter, we did see volatility return to the market correlated to the rise in mortgage rates. Periods of rate increases create uncertainty for consumers, which can delay their purchase decisions. Despite this, the desire for homeownership is strong and the appeal of a personalized home is clear as we generated a higher mix of sales of built-to-order homes in our second quarter than we have in several quarters. Personalization is a key differentiator for our company, and its appeal is even stronger as our build times are normalizing, and as most large production builders have migrated to an all-spec model, particularly for first-time buyers.” —Jeffrey Mezger, president and CEO, KB Home
“We believe our business is exceptionally well-positioned to take advantage of strong housing fundamentals in the years ahead to deliver strong results that exceed our historic performance as we strive to be within the top tier of our industry. Our confidence in this outlook is reflected in the long-term targets that we introduced last quarter. These include 10% plus annual home closings growth and annualized low three absorption pace, low-to-mid 20% home closings gross margins and mid-to-high teens returns on equity.” —Sheryl Palmer, chairman and CEO, Taylor Morrison
“Markets where we saw particular strength in the quarter included New Jersey, Pennsylvania, Metro D.C., South Carolina, Atlanta, Boise, Las Vegas, and all of California. Price adjustments in the quarter were community and market dependent. Overall, pricing was flat compared to the second quarter and incentives continued to run approximately 5.5% of our average sales price. We are optimistic that market conditions will remain positive for home builders into the foreseeable future. The underlying drivers of demand remain firmly in place, including favorable demographics, driven by millennials, many of whom are buying their first home later in life when they have higher incomes and accumulated wealth. Older millennials are now hitting their 40s which should provide a tailwind for our luxury move-up business over the next decade. In addition, baby boomers are moving into new homes as they retire and adjust their lifestyles.” —Douglas Yearley, CEO, Toll Brothers
“Nearly 100% of our homes were built on a spec basis in the second quarter, and this approach allows us to control our costs, maintain an appropriate supply of quick move-in homes, provide our home buyers with certainty of financing and meet the healthy demand that we are seeing in our markets.” —Dale Francescon, co-CEO, Century Communities
“Even though we have seen a rise in inventory in select markets, most notably Florida and Texas, we strongly believe that the underlying fundamentals of our industry remain strong. There exists a housing shortage in every one of our 17 markets, and we continue to see an ever-increasing number of millennials and Gen Z buyers seeking homeownership. All of this suggests a very bright future for our industry.” —Robert Schottenstein, president and CEO, M/I Homes
“Despite the continued home affordability and interest rate challenges, Dream Finders achieved another strong quarter driven by our continued focus on strategic growth and operational efficiencies. While there are plenty of challenges facing the home building industry, we believe DFH is well positioned to continue to capitalize on opportunities going forward. We reiterate our guidance of 8,250 closings for the full year 2024 and are hard at work building the foundation for continued growth in 2025 and beyond.” —Patrick Zalupski, chairman and CEO, Dream Finders Homes
“Constrained affordability remains the No. 1 challenge for customers and the key limitation on higher sales and closings. With rising land and input costs, compounded by higher interest rates and increased cost of insurance and property taxes, today's entry-level customer faces hard choices and has fewer options. At LGI Homes, we're making those choices easier and creating meaningful value for our customers by providing affordable sized but feature-rich homes and offering the mix of incentives that results in the most attainable monthly payment for our buyers. Finding the effective mix of each of these levers: product type, size, amenities, ASP, and incentive levels presents a unique set of operational challenges in every market.” —Eric Lipar, chairman and CEO, LGI Homes
“Anecdotally, there seemed to be some hesitancy from home buyers during the third quarter causing some choppiness in sales, similar to what other home builders have been reporting. It’s difficult to pinpoint the cause of the choppiness, but economic, mortgage rate, and geopolitical uncertainty were likely partially responsible. Furthermore, we had extended disruption from Hurricane Beryl across our Texas operations in particular, which is one of our single largest states by deliveries, both our Houston and Dallas offices and many of our associates were without power for the better part of a week during the critical last month of the quarter, this hurt sales and deliveries. Sales have jumped back in a very strong manner in recent weeks.” —Ara Hovnanian, president and CEO, Hovnanian Enterprises
“Considering how strong demand trends have been with elevated rates, the possibility of lower rates in the back half of the year would be a positive for the consumer and our business. Long term, we maintain a very optimistic outlook for the industry and our company. The ongoing demand for new housing from millennials and Gen Z, coupled with persistent supply constraints in the resale market, land availability, and labor resources, create a strong foundation for sustained growth in the new housing market. These factors position our company favorably for future success as we continue to address the increasing need for new homes in the face of limited existing inventory.” —Doug Bauer, CEO, Tri Pointe Homes
“Eventually, we expect lower rates to improve affordability for home buyers. With this positive longer-term outlook, we remain fully committed to our three multiyear goals, which include expanding our community count, deleveraging our balance sheet, and delivering a demonstrably superior home. We ended the quarter with 146 active communities, up about 17% year over year and up slightly on a sequential basis. By the end of fiscal 2024, we expect our active community count to exceed 155, representing annual growth of about 15%. With similar growth expected in fiscal year 2025, we have a clear path toward achieving our goal of having more than 200 communities by the end of fiscal year 2026.” —Allan Merrill, CEO, Beazer Homes
“Given the current interest rate environment, the increasing finished lot costs associated with the land-light model make it an unattractive option for us, and we anticipate these dynamics to continue. We have been able to significantly increase our lot position while deleveraging our balance sheet. Additionally, in our largest markets, Dallas-Fort Worth and Atlanta, there are very few third-party lot developers. Being able to self develop land, unlocks access to more land opportunities, especially in desirable infill and infill adjacent submarkets. This approach also allows us to produce finished lots at wholesale prices as opposed to buying at retail, and control the pace of lot deliveries. We believe our unique strategy and land provides us with strong competitive advantages to continue to gain market share in a capital-efficient manner.” —Jim Brickman, co-founder and CEO, Green Brick Partners
“We have made it a priority to eliminate as much of the land risk from our operations as possible by tying up land with option agreements and seeking to take ownership of lots on as close to a just-in-time basis as possible. At the end of the second quarter, 96% of our unstarted controlled lots were controlled via option agreement. While this land acquisition strategy can result in higher lot cost in an upwardly trending market, we feel it serves as an insurance policy against potential downturns. It also allows us to deploy our capital more efficiently and generate better returns. Overall, we feel good about the current state of our operations. We believe we have the right strategy in place in the right markets to allow us to grow our home building operations beyond what they are today.” —Greg Bennett, president and CEO, Smith Douglas Homes
“We want to continue to concentrate our efforts on the business of building and selling homes, not speculating on land. Sourcing lots from third parties on a just-in-time basis will allow us to do that, while also giving us some downside protection should the market conditions soften. Balancing out our growth objectives is our commitment to maintaining a strong financial position. We are now on much more solid footing with respect to our access to capital and feel that we have entered a new phase in our company’s evolution as a result of these actions.” —John Ho, CEO, Landsea Homes
“The second quarter of 2024 was a period of transition for our company consolidating recent acquisitions, rationalizing our workforce, and reorienting our product offerings in some markets. While we believe the actions we took during the quarter will be beneficial to our company over the long term, they did have an adverse impact on some of the aspects of our results this quarter. This does not alter our long-term outlook for the company or diminish our enthusiasm we have for the markets we’re in. We have ambitious goals for our company, and we felt that setting the right foundation upon which to grow is an important step to take this quarter.” —Jack Micenko, president, United Homes Group
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