National Housing Market Outlook

The Goldilocks New Home Market

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Danielle Nguyen

June 14, 2024

Key takeaways:

  • The new home market is in a “Goldilocks” period, where demand remains strong relative to available inventory and the economy is stable—not too hot and not too cold.
  • Big homebuilders are growing larger, gaining market share, and benefiting from their size and scale to maximize efficiency and growth.

On May 14–15, 2024, an intimate crowd of clients and colleagues gathered from across the housing industry for our annual Housing Summit. Attendees made connections, learned from one another, and discussed game-changing strategies. There were no vendors or press, just valuable insights and the forging of relationships among decision-makers shaping our industry.

Overall, executives came into The Summit with even more optimism than last year and left with greater clarity on how to navigate a higher-for-longer interest rate environment.

Below is a brief snippet from our client-only 35-page event summary, focusing on key takeaways on the new home/land market. This spotlight covers only a fraction of the two-day event and the knowledge gained and connections made.

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.

Addressing affordability

Builders are addressing affordability to compete with the resale market through:

  • Simplification/standardization: Simplified designs and standardized options can help lower costs.
  • Rate buydowns: Builders offer rate buydowns to make mortgage payments more affordable.
  • Building smaller homes: Builders are offering smaller homes at lower prices in more distant locations to drive down the new home price premium.

The new home premium vs. resale fell to 7% nationally, below the 16% historical average (see chart below).

Concerns to monitor

Panelists and roundtable discussions highlighted some concerns:

  • Unsold speculative inventory nearing completion is rising—though it remains at healthy levels in most markets.
  • Rising resale inventory, especially in the Texas and Florida markets, may impact new home demand in several top markets and the ability to keep pushing prices.
  • Will we run short of buyers who can afford 7% mortgage rates?

Panels, topics, and speakers below:

Our Research memberships provide the latest insights into market trends, backed by our comprehensive forecasts that span the for-sale, for-rent, and building products markets. Our client-only conferences allow for vital networking with decision-makers across the housing industry.

Our experienced Consulting team stays busy providing due diligence, market feasibility, and investment recommendations for our clients, who are deploying billions in capital to build homes nationwide.

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About The Author

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Danielle Nguyen
Vice President of Research
Danielle manages, implements, and analyzes the housing market with a specific focus on for-sale and for-rent research. She is a research content creator who produces high-quality, insightful, and forward-looking housing research and a trusted resource (connector) for clients and those interested in JBREC’s research.

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