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Builder Outlook Heading Into the Final Quarter of 2023


In the third quarter of 2023 public homebuilders noted an uptick in sales and revenues over last year despite market affordability challenges. The National Association of Home Builders (NAHB) Housing Market Index — a barometer for home sales sentiment and ratings — dipped to 40 in October 2023, signaling caution, yet performance in new home sales and profits outperformed analyst expectations.


Housing Inventory

The reoccurring theme for the housing market in 2023 is the imbalance between supply and demand. The inventory of available homes simply cannot catch up to the market’s demand.


Net Sales

Despite rising interest rates, builders report strong sales activity with fewer cancellations.Contracts for new homes outperformed the same period from 2022, with orders meeting or surpassing typical seasonality.


Incentives

Production builders continue with interest rate buydowns, reducing rates by 2 to 3 percentage points to entice new home buyers. This tactic not only gives them an edge over the resale market,but also sets them apart from smaller builders. Builders are hopeful that the need for incentives will lessen in 2024 as the market for new homes continues to tighten.

Profit Margins

Profit margins varied from builder to builder with some noting year-over-year increases and others experiencing decreases. Nonetheless, profit margins for the nation’s leading builders remained robust. These increases were likely bolstered by reduced incentives, stronger pricing leverage of spec inventory, and resilient demand. Looking ahead, projections from major builders anticipate that margins will remain steady through the end of the year.


Land and Developed Lots

Builders remain bullish on acquiring land and lots, dedicating more resources and financial investment to secure prime real estate positions. Most builders saw their year-over-year lot inventories expand as they aggressively seek to satisfy their demand for developed lots and to increase their community counts. Production builders are maintaining their strategic focus on securing at least three years' worth of developed lots by fostering strategic partnerships with lot developers nationwide.

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