The resilience of demand in the housing market—partially aided by limited resale supply—contributed to strong quarters across the board for public home builders. In the recent round of quarterly earnings reports, many public builders posted record quarterly levels of sales, revenues, and profits per share, results supporting a growth-oriented outlook for 2024. The quarterly results and demographic tailwinds did little to temper growth plans, with many companies reiterating their 10% annual growth targets for closings and community openings.
In addition to limited resale supply, large public builders are also benefiting from several competitive advantages over the existing-home market, namely the ability to offer financing incentives. With elevated mortgage rates, rate buydowns remain prevalent in the market, particularly for first-time home buyers. Additionally, the ability for home builders to aid with closing costs and offer design upgrades are resonating with prospective buyers.
While lot availability ranked as the second biggest concern for home builders entering 2024, according to the NAHB, public builders largely reported strong lot portfolios through the early months of 2024. With strong years of supply, a majority of builders stated they had sufficient land to support growth targets through 2025. As a result, the companies have been more selective when evaluating land deals in the current market, characterized by increased competition and rising lot prices.
As a result of the underlying fundamentals and positive demand trajectories, executives at public firms shared largely positive outlooks during earnings calls in the recent reporting period:
“To address affordability for home buyers, we are still using incentives such as mortgage rate buydowns, and we have reduced the prices and sizes of our homes where necessary. Based on current market conditions and mortgage rates, we expect our incentives to remain at these elevated levels in the near term. Our sales continue to be primarily from homes under construction and completed homes, and we will continue to start homes and maintain sufficient inventory to meet sales demand and aggregate market share.” —Bill Wheat, executive vice president and chief financial officer, D.R. Horton
“On the operational side, we are running under a by-design operational model, where we are starting homes at a pace designed to increase market share while we maximize logistics and efficiencies in order to benefit from reduced construction costs. Our trade partners are given visibility on starts and timing expectations so that they can be more efficient and help pass efficiency savings onto our customers through more affordable products. By driving volume, we gain market share in most of our core markets as we lean in when others pull back. Our trade partners see a consistent and dependable partner that is worthy of the designation of builder of choice. We work side by side with our trade partners while we attract additional trade partner relationships.” —Stuart Miller, executive chairman, Lennar
“When buyer demand is rising, we’re often asked how many more homes we can sell given the value we place on entitled loss and our focus on driving high returns. More volume is not the only answer as we work to balance pace and price to drive high returns. Within our operating model, stronger demand provides choices: We can sell more houses or we can raise prices, or, as was the case in the first quarter, we can do both. What we experienced in the first quarter is that areas of strong demand last year—such as the Southeast, Florida, and Texas—continued to perform well into 2024. Even more positive is that areas that had some struggles in 2023, notably Arizona, California, and Nevada, were much improved in 2024.” — Ryan Marshall, president and CEO, PulteGroup
“Nearly 50% of our quarterly deliveries were sold and closed intra-quarter, a trend that has been increasing for the last three to four quarters, resulting in a record backlog conversion of 138%. This conversion rate is materially north of our previous long-term target of 80%-plus and notably higher than even our fourth quarter 2023 backlog conversion of 110%, helping drive improved return on equity over the last several quarters. … This success was the intentional result of migrating to a move-in-ready strategy across both our entry-level and first-mover products, allowing us to enter the year with a sufficient supply of homes available for quick close, particularly in advance of the spring selling season. We were able to both increase prices and offer less financing incentives than we anticipated on those quick move-in closings, meaningfully improving our first quarter 2024 gross margin.” —Phillippe Lord, CEO, Meritage Homes
“Our strategic goals continue to be optimizing each asset on a community-by-community basis, which generally results in an annualized average absorption pace of about five net orders per community per month and generating high inventory returns. … We continue to align our starts with sales and plan to ramp up our starts given strong demand to position our business for the second half of 2024.” —Jeff Mezger, president and CEO, KB Home
“Our strategic emphasis on broad consumer reach, quality locations, and a flexible production model is grounded in a through-the-cycle playbook that aims to deliver sustainable long-term profitability and cash flow generation while minimizing our exposure to housing cyclical forces. The success of this strategy is demonstrated with our increase in this year’s guidance for home closings, gross margin, and average closing price despite the renewed mantra of higher-for-longer interest rates. … We further maximize our results by optimizing our construction efficiencies and gross margin opportunity by offering both quick move-ins and personalized to-be-built homes aligned to our customers’ needs and preferences, while our geographic diversification adds another layer of risk mitigation and growth opportunity.” —Sheryl Palmer, chairman and CEO, Taylor Morrison
“Our outstanding results in the first half of the fiscal year and the increase in our guidance for the full year are being driven by execution of the strategies that we've outlined on recent calls. To take advantage of the healthy demand and persistent lack of inventory that characterizes this market, we have both widened our price points to include more affordable luxury homes and increased our supply of spec homes, which has helped us grow market share. This also enables us to reduce cycle times, improve inventory turns and leverage our fixed costs, driving revenue growth and higher operating margins. With these strategies firmly in place and producing results and with our more capital-efficient land strategy, we are confident that we can continue to generate attractive returns well into the future.” —Douglas Yearley, CEO, Toll Brothers
“While we continue to provide incentives through rate buydowns when necessary, we are seeing buyers adjust at higher rates across our platform, which has enabled us to reduce our level of incentives. Our focus on affordability positions us well for future growth and continued success as we can target the widest range of potential home buyers. Our average sales price, of $391,000, remains among the lowest of the publicly traded home builders. In the first quarter, we generally matched our starts with our sales, and built nearly 100% of our homes on a spec basis. 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
“During the quarter, we were operating, on average, in 10% more communities than a year ago. We continue to benefit from strong housing fundamentals, including an undersupply of homes and low inventory levels in most markets. We have seen a slight uptick in used home listings in certain markets, particularly Florida. However, the use of below-market financing incentives, where necessary in select markets and targeted communities, has been and continues to be an important driver of our business. Our Smart Series homes, which is our most affordable line of homes, continues to be a meaningful contributor to our sales and operating performance.” —Robert Schottenstein, president and CEO, M/I Homes
“Despite persistent uncertainty in the interest rate environment, DFH achieved another quarter of quality growth, with home building revenues of $825 million, an 8% increase over the prior year quarter and another first quarter company record. … We remain enthusiastic about our current and long-term prospects for DFH as we continue to pursue strategic opportunities in new and existing markets.” —Patrick Zalupski, chairman and CEO, Dream Finders Homes
“Despite the slower start in closings, the improved lead and sales trends we saw in February accelerated further in March. It's also worth noting that improvements [in net orders] were accomplished solely through marketing and training, not through price discounting or increasing incentives. These recent sales trends give us confidence that demand remains healthy, supported by positive long-term fundamentals, including strong demographic trends and a limited supply of affordable homes.” —Eric Lipar, chairman and CEO, LGI Homes
“I feel like we’re in a Goldilocks environment. The market is not too hot, and it’s not too cold. A hot market would challenge construction costs. It would create challenges with labor shortages and material shortages and would certainly make it even more difficult to purchase land. The challenges of a cold market are obvious, but the current environment feels balanced and more sustainable with higher rates keeping the resale supply limited and demand in check, yet sufficient to have a good supply-demand balance.” —Ara Hovnanian, president and CEO, Hovnanian Enterprises
“In the current housing cycle, new-home builders are continuing to capture a share of the total home sales at a historic percentage. Despite near-term inflation-driven rate increases, we remain encouraged about the long-term fundamentals of our business, which are supported by a solid economic environment and ongoing household formations, particularly among the millennials and Gen Z buyers who continue to act as a demand catalyst.” —Doug Bauer, CEO, Tri Pointe Homes
“Given the importance we’ve placed on developing and delivering our READY Series homes, I am pleased to report that despite having somewhat higher construction costs, these homes are generating higher margins than our prior series. So this spring, to accelerate our transition to the READY Series, we’ve been encouraging our teams to be very competitive with pricing and incentives on our earlier STAR and PLUS Series homes. This will allow us to close out of older communities more quickly and simplify our production and sales efforts around the READY Series. We can prove that these are the best built homes in our markets, and the sooner we are solely focused on building and selling them, the better.” —Allan Merrill, CEO, Beazer Homes
“Unlike most peers, we do not rely on land banking to acquire or develop lots. We believe this strategy puts us in a stronger position due to our lower cost of capital and a greater ability to minimize potential cost escalation between phases. Because we self-develop most of our lots, we avoid paying retail lot prices on contracts that typically have 6% annual price escalators and have better control of the development costs and timing for our finished lots. We believe this approach can mitigate some of the lot inflation pressure that our peers are facing.” —Jim Brickman, co-founder and CEO, Green Brick Partners
“Our focus remains on the more affordable segments of the market, which is reflected in our average sales price of $334,000 for the quarter. We believe it is the most supply-constrained segment of the market, and most attractive from a buyer demographic standpoint. We cater our home offerings to entry-level buyers and empty nesters who are looking for customizable homes at an affordable price. This strategy has not only resulted in strong volume growth for our company over the years, but also healthy profitability, as evidenced by our home building gross margin of 26.1% for the quarter.” —Greg Bennett, president and CEO, Smith Douglas Homes
“We accomplished a lot in the first quarter, both from an operational and financial standpoint and feel we are in a great position to achieve our goals for 2024 and beyond. The new-home market continues to benefit from a lack of existing-home inventory and pent-up demand from buyers who were motivated to own a home. We have made great progress in positioning our company to take advantage of these favorable trends, both in terms of our geographic footprint and our product positioning. As a result, I believe Landsea Homes can build on the success we've already achieved and established our company as a top builder in each of our markets.” —John Ho, CEO, Landsea Homes
“With a focus on affordability, a land-light operating strategy and a strong track record of home building success, United Homes is poised to grow beyond its existing footprint for both strategic M&A and organic growth. We continue to see a favorable home building landscape in our markets, thanks to a lack of home inventory in the resale market, continued strong job growth, and household formation. Both companies and families continue to migrate to cities and throughout the Southeast, creating a need for new housing, and we plan on capitalizing on this trend for years to come.” —Jack Micenko, president, United Homes Group
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