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The Goldilocks New Home Market

From May 14–15, 2024, a select gathering of clients and colleagues convened for our annual Housing Summit, representing diverse sectors within the housing industry. Participants networked, exchanged insights, and explored transformative strategies. The summit was exclusively attended by decision-makers, fostering meaningful connections and discussions devoid of vendors or media presence.

Executives entered the summit with heightened optimism compared to the previous year, departing with clearer strategies for navigating a prolonged period of higher interest rates. Our client-exclusive 35-page event summary offers a glimpse into the insights gleaned and relationships forged during this intensive two-day event, focusing here on key takeaways from the new home and land market. This overview captures just a portion of the comprehensive knowledge shared and connections established.

According to John Burns Research and Consulting,

The Goldilocks New Home Market: Not Too Hot nor Too Cold

Even with elevated mortgage rates, homebuilders are thriving, reporting strong sales and healthy gross margins. Factors such as incentives, reduced cost pressures, mortgage rate buydowns, and limited competition from resale homes contribute to this resilience, described as a “Goldilocks” market by several homebuilder executives at our conference.

  • Fresh insights from our proprietary Burns Homebuilder Survey show the new home market has cooled off a bit in May and June amid high rates and seasonality.

Gross profit margins aren’t returning to 18%–19% anytime soon.

  • 13 of the 19 public homebuilders have 20%+ gross margins.
  • 12 of the 19 public builders saw gross margins rise compared to one year ago.
  • Gross margins rose to 24.8% in 1Q24 for the largest public homebuilders. Though below the all-time high of ~28% in 2022, gross margins are significantly higher than more normalized years for housing (see chart below).
  • Strong gross margins allow builders to offer incentives like rate buydowns while staying profitable.

Big builders will keep getting bigger.

The market share of large builders has steadily increased. Public builders, private builders with public debt, and private builders that are part of publicly traded subsidiaries delivered 55% of all new homes in the US (see chart below).

There is a growing trend of mergers and acquisitions and consolidation, with a flurry of transactions occurring in 2024.

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