With public builders now comprising 34% of new home sales, we thought we would check in on the state of the industry by sharing our roll-up of their financial statements.
The publicly traded home builders have shown tremendous discipline this cycle, building fortressed balance sheets while growing the business steadily. Growth has slowed lately as the larger builders who already have large market shares in most of their locations have decided to become more conservative, awaiting better opportunities to buy land.
Doubled home-building revenue over the last four years
In the last year, publicly traded home builders closed 123K homes valued at $47 billion in revenue ($382K per home) and have over $20 billion in sales backlog (a 5-month supply). Revenue in 2012 was only $22 billion. Some of this growth can be attributed to private builders becoming publicly traded.
Six years of land supply.
Public builders control more than 720K lots, which is enough to last six years at current sales rates. Strategies and local market dynamics differ markedly by builder, but few seem overly concerned that they do not have enough land these days.
Strong balance sheets.
The largest seven builders* have rock-solid balance sheets, with $27 billion in book equity (over half of their annual revenue). They have also paid down debt to only 36% of their asset value. Low debt levels provide huge cushions in the event of a downturn and great opportunities for acquisitions if so desired.
Thinner margins.
Gross margins have slowly fallen since early 2015 to 18% of home-building revenue. Rising construction costs, higher land prices, and slower-than-usual sales rates have all contributed to the margin challenges. Most builders have become very focused on margins lately, searching for ways to reduce costs and vetting every land deal even more carefully.
In conclusion, the publicly traded home builders as an industry are in great financial shape—both poised for growth and prepared for a downturn. Most expect the industry to continue to grow slowly but are prepared to react no matter what happens. Pretty nice situation to be in!
*The top seven builders include: CAA, DHI, KBH, LEN, NVR, PHM, TOL, and TPH.
