The 2024 Q2 results showed strong employment, a persistent shortage in housing supply, and robust demand fueled by strong household formation.
Net Sales
Faced with persistently high interest rates and home prices, buyers still jumped at the opportunity and hurried to make purchases when interest rates dipped during the second quarter. This created a feast-or-famine situation for homebuilders, with demand fluctuating based on the week's interest rates, but in the end most builders experienced an increase in net sales.
Revenue and Homes Closed
Similarly, earnings met expectations for builders. Revenues surged into double digits for several top builders, and overall home deliveries remained strong. Buyers who enter into contracts are backing out less frequently—an indication that they are both qualified and committed to purchasing a home.
Gross Margin
Despite flat or declining average sales prices, gross margins ranged from 21.1% to 29.9% for the nation’s top ten builders. This increase is attributed to a reduction in stick and brick costs compared to the previous year.
Headwinds
Builders that are aggressively expanding into new markets report that SG&A expenses continue to rise due to upfront costs. Additionally, the tight job market requires builders to offer incentives to retain employees, as the leverage currently favors the workforce.
Land
Whether it's referred to as "balance sheet friendly financing" or "land light," production builders are increasingly opting to secure much of their lot pipeline inventory through third-party developers to enhance their returns. These partnerships with developers will continue to shape land acquisition, entitlement, and development strategies for builders in the foreseeable future.
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