Are You Current on Today’s Residential New Construction Builders?

November 18, 2019

Are You Current on Today’s Residential New Construction Builders?

We work with a lot of building product manufacturers who want to break into the residential new construction market. These manufacturers don’t have a national presence or significant market share yet, and need help getting started in the industry.

Our tried-and-true advice: Be thorough and take it from the beginning. That starts by learning the industry and its players. While we will help you get to know the local and regional builders active in your markets, we’re happy to help introduce you to the industry itself right here and now.

The state of the home building industry in 2019

Housing starts 1.25 million 1.203 million
Housing completions 1.18 million 1.15 million
Total homes sold 5.3 million 5.5 million
New homes sold 617,000 613,000

Source: NAHB and the Joint Center for Housing Studies of Harvard University

Here’s the good news: The housing industry is in much better shape than in 2008 when the housing bubble burst, and it’s been in recovery since 2012. But you need to know we’re talking about an industry that hasn’t rebounded at the same rate as the economy.

And the reasons for that are laid out nicely in the report, “The State of the Nation’s Housing 2019” by the Joint Center for Housing Studies of Harvard University. Here’s what it says:

  • The housing boom in the early 2000s created an excess supply of homes that took nearly a decade to work off. Now, home builders and lenders are wary of repeating history.
  • Labor shortages are making it hard for home builders to find reliable workers, and their traditional labor pool — younger men without college educations — is shrinking.
  • Housing affordability has become a nationwide issue, in part due to a lack of diverse housing options, and it’s impacting who can purchase a new home.

Within the industry, you’ll see these factors continue to play out, influencing housing starts to completions to number of homes sold. Yet, while recovery has been slow, it has been trending positively with continued promise for growth.

To help you gain a deeper understanding of the industry’s current state, we’ve pulled some additional trends from industry reports and our own research.

Costs of business are increasing

Builders are frequently reporting cost increases in land, labor and materials, which makes it more difficult to provide diverse housing options. We’ve seen these increases play out in 2018 and into 2019 among small- to mid-sized builders surveyed for our monthly BTIG/HomeSphere Builder Intelligence Report. In 2018, builder respondents reported a spike in costs in June and July. Though costs appear to have somewhat stabilized in 2019, about 30 to 50 percent of our respondents consistently report increases in the cost of building materials each month.

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Housing starts consistently growing in the south and west

Data from the National Association of Homebuilders shows slow-but-consistent growth in housing starts in the south and the west, even as growth in the northeast and Midwest stagnates and, at times, falters. 

Home price growth is outpacing income

A guidepost for determining housing affordability is to compare median home price to median income, and it’s become clear that income is not keeping up with home prices. In fact, the Joint Center notes in their 2019 report that price-to-income ratios are back near peak levels (the peak being 4.7 in 2005). 

Most homes sold in 2018 were between $300-399,000

Of the 617,000 new homes sold in 2018, 153,000 (or 25 percent) were priced between $300-399,000, according to the United States Census Bureau. The next largest percentage, at 16 percent, or 98,000 units, were homes priced between $250-299,000. Only 7,000 homes (or 1 percent) accounted for properties priced under $125,000, while 36,000 (6 percent) accounted for luxury homes priced over $750,000. 

The end of 2019 is looking bright

While the industry experienced a slowdown across 2018 to 2019, the end of 2019 has shown both increased sales among our own builders who participate in our BTIG/HomeSphere Builder Intelligence Report as well as a promising rise in housing starts and permits. With the fourth quarter underway, housing starts are up 8.2 percent from where they were in 2018. In October, they were at a seasonally adjusted annual rate of 1,314,000. While these numbers are subject to change, it’s an indication builders are seeing solid business.

What else

We recommend following our trends reports to track month-to-month developments. For instance, home builder confidence is currently high, builders are reporting seeing solid business in recent months and housing market indicators are pointing to continued growth

The biggest takeway we can offer, however, is how you plan to take this information to sell to home builders better. The information in this post was adapted from our upcoming guide to selling to home builders. If you’re an emerging manufacturer and you’re interested in reading the full guide, let us know.

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