Slowing Builder Business More Supply Driven Than Demand Driven
July 22, 2021
In our latest State of the Industry Report, compiled with BTIG, fewer home builders reported year-over-year sales increases compared to May — but, based on survey answers so far, it’s not primarily because buyers aren’t interested. Anecdotal commentary suggests builders are attributing about three-quarters of slowing sales to supply constraints and about one quarter to weakening demand.
On the supply side, builders indicated they have fewer homes to sell after robust demand or they’re intentionally slowing sales to match production capacity (or both). In the survey, 37% of respondents said that fewer homes or lots to sell was the primary reason for lower sales contracts per community compared to one year prior, while 37% indicated they were purposely delaying sales due to supply chain or labor constraints.
Meanwhile, 26% of builders reported customers who aren’t willing — or aren’t able to — pay higher prices as the primary reason for lower year-over-year sales.
It’s likely builders will start to moderate price increases, but that could risk hurting margins. As a result of these conditions, it’s not surprising that builder confidence came in one point lower, at 80, in July in the NAHB/Wells Fargo Housing Market Index. (Keep in mind, that any number over 50 indicates that builders view conditions more favorably than not.)
Highlights from the latest State of the Industry Report
Sales. For June, 44% of respondents reported year-over-year increases in sales per community, compared to 48% for May and 60% for June 2020. Meanwhile, 31% reported a year-over-year decrease in orders compared to 15% for both May 2021 and June 2020.
Traffic. Fewer builders also reported a year-over-year increase in traffic, with 58% reporting an increase for June, compared to 67% for May, and 12% reporting a decline (the same as May). In terms of traffic quality, 52% reported better quality year-over-year traffic compared to 54% in the last report and 65% in June 2020.
Expectations. Both sales relative to expectations and traffic relative to expectations increased from May, with 42% of respondents reporting sales as better than expected (compared to 37% for May) and 48% reporting traffic as better than expected (compared to 38% for May). Meanwhile, 17% reported sales as worse than expected, holding steady from May.
Pricing and incentives. Builders, grappling with costs, are continuing to raise prices. In June, 94% of builders raised some, most or all base prices from May, which is down from 100% of respondents bumping at least some bases from April to May. No builders reported lowering most, all or some base prices for the seventh straight month. Incentive use has picked up slightly with 10% of builders increasing most, all or some incentives — the highest level since December 2020.
Costs. While cost pressures eased slightly, they remain elevated with 80% of builders reporting rising material costs compared to 98% for May and 47% in June 2020. In month-over-month changes in labor and land costs, 61% and 57% of respondents reported increases, respectively. That compares to 77% and 62%, respectively, for May.
HomeSphere/BTIG State of the Industry Report
HomeSphere partners with the research firm BTIG to create a monthly report to provide our builders and manufacturers with exclusive and timely insights about the market.
To compile the report, we survey HomeSphere’s 2,700+ regional and local home builders about sales, traffic, pricing, labor costs and other key industry metrics.
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