OUR THOUGHTS ON:

Largest Homebuilders Report Positive Results

Construction

By Joe Bruce

In July 2013, the U.S Department of Housing and Urban Development released June residential statistics that confirmed what many of the largest U.S. homebuilders would convey in their quarterly earnings press releases. The 2013 residential construction market has significantly improved over 2012; demand in many markets is outpacing supply; and home prices are on the rise. Privately owned housing units authorized by building permits were up 16%; housing starts were up 10%; and housing completions increased 20%, all when compared to June 2012 statistics.

NVR (Ryan Homes) announced that second quarter 2013 revenues had increased 31% over the comparable 2012 quarter, and new orders in the second quarter of 2013 have outpaced 2012 second quarter new orders by 25%.

PulteGroup also showed substantial improvement in 2013, with revenues up 19% over the second quarter of 2012. The higher revenues for the period were driven by a 9% increase in average selling price and 9% increase in home closings. PulteGroup indicated that this reflects price increases implemented by the Company and a shift in mix of homes closed toward more move-up houses. PulteGroup CEO Richard Dugas noted, “The U.S. housing market continues to gain momentum and remains solidly on track towards a sustained, long-term recovery” and “consumers continue to perceive good values, amidst limited supply and generally rising sales prices.”

D.R. Horton, the largest homebuilder in the U.S., also showed substantial improvement in its 2013 quarterly results, with revenues up a whopping 47%; net orders for the quarter up 12%; and average sales price increased 15%. The Chairman of the Board, Donald Horton, indicated that the sales price increase was indicative of “our pricing power across most of our markets and increased demand from move-up buyers.” D.R. Horton operates in 78 markets and 27 states throughout various regions in the United States.

Another familiar face in the homebuilding industry, KB Home, announced a staggering 73% increase in revenues this quarter compared to 2012. The increase was driven by both an increase in home closings of 39% and an increase in average selling price of 25%. Jeffrey Mezger, CEO, indicated that “our ongoing investment strategy to reposition our operations continues to produce favorable returns. Combined with community placement and product initiatives, our actions to optimize pricing and margins have generated substantial increases in our net order value, average selling price, revenues and operating income.”

West coast based homebuilder Ryland Group also showed head-turning results for their June 30, 2013 quarter end with revenues up 68% over 2012, driven by a 49% increase in closings and a 13% increase in average closing price. Additionally, Ryland completed an acquisition of Cornell Homes, one of the Philadelphia market’s largest private homebuilders, in July 2013, and Texas homebuilder, LionsGate Homes, in June 2013.

Economists believe that the sustained growth in the residential construction industry is imperative to a solid long-term economic recovery in the U.S. Although consolidation in the industry has decreased competition and limited land availability has decreased supply somewhat, true demand in many markets has increased, particularly from move-up home buyers, and prices are expected to continue to increase throughout 2013.

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