US Homebuilders Thrive Amid Housing Shortage
The US homebuilding industry is experiencing a surge in demand despite challenging economic conditions.
Mortgage rates have reached levels not seen since 2008, and home prices have increased by 30% nationally over the past four years, reports Forbes, which says that a nationwide shortage of at least 4 million housing units has created a favourable environment for homebuilders.
In the US, the S&P index of builders, which tracks the performance of homebuilding companies, has risen by 57% over the past 12 months. DR Horton, the largest homebuilder in the US, has seen its shares increase by 70% during the same period. Meanwhile Toll Brothers, a luxury homebuilder, has experienced a 96% increase in its stock price.
Forbes says the building boom has led to the creation of at least 12 new billionaires in the US homebuilding industry. Among these are Kathy Britton of Perry Homes, Itzhak Ezratti of GL Homes and three members of Lennar Group’s Miller family.
Robert Dietz, Chief Economist at the National Association of Home Builders, a trade association representing the homebuilding industry, tells Forbes: "You put all that together and you have an environment that is solid and performing better than I think most economists would have expected."
Homebuilders focus on affordability
Patrick Zalupski is Founder of Dream Finders Homes, a homebuilding company that focuses on first-time buyers and those looking to upgrade, and has implemented a strategy to make homes more affordable. The company has cut out some higher-end features and made them optional upgrades.
Zalupski tells Forbes: "We used to customise a lot more. All of that comes with a tremendous amount of inefficiency and cost. Now it's just about trying to deliver a more affordable house at the end of the day."
Charles Bradbury, founder of Smith Douglas Homes, has developed a scheduling software called the SMART build system. This system updates trade partners and material suppliers in real time, reducing build time to an average of 59 days from start to finish.
Bradbury says: "Our goal is to be as efficient as we possibly can to try to reach as many folks as we can. Ever since I've been in business, I've had big, hairy, audacious goals—and I always come close or beat them."
US builders adapting to market demands
Lennar Corp, America's second-largest homebuilder, has started producing 660-square-foot houses as wide as a driveway for as little as $137,000. The company has sold nearly every lot in its first-ever tiny homes community in San Antonio this year.
Stuart Miller, Lennar CEO and Executive Chairman, says: "Demand remains robust if it can be supplied at an attainable price point."
Meanwhile, Toll Brothers – known as the largest US luxury home builder – has also shifted into more affordable markets. In 2016, the company began offering smaller townhouses and homes on smaller lots at the $450,000 price point.
Doug Yearley, Chairman and CEO of Toll Brothers, says: "A total of 40% of Toll Brother homes are being sold at this lower price range. In a high interest environment, we're doing well."
The homebuilding industry's success is likely to continue in the foreseeable future, says Forbes. The National Association of Realtors, a trade association for real estate professionals, predicts there will still be a housing shortage for at least the next five years, even if building activity outpaces population growth.
Lawrence Yun, Chief Economist at the National Association of Realtors, says: "Home builder outlook for the next five years is still good just because we have a sizable housing shortage. I think builders will ramp up production but there will not be an oversupply."
Charles Bradbury of Smith Douglas Homes concludes: "The sad part of it is that there are a lot of people that could afford a house but now they can't. It would be a blessing if the rates went back down and people who are renting and would love to own a house can buy one."
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