Since the recession, builders have migrated to building, and selling, a greater number of high-end homes.
In 2009, 19 companies of the 200 companies on the BUILDER 100 reported that 50% or more of their closings came in the affordable sector. By last year, that number had fallen to just two. Similarly, in 2010, 70 builders of the 200 builders on the Builder 100 reported that 50% or more of their closings were squarely in the entry-level market. Last year, 43 of the builders reported 50% or more of their closings in that segment, but that’s actually an increase from 2014, when 36 builders closed 50% or more of their homes in the entry-level sector.
As builders have fled entry-level, higher price bands have benefited. But that change may not have occurred in the areas one might expect. Over the past eight years, the active adult and luxury/custom have seen only small increases in the number of builders closing 50% or more of their homes in these sectors: In 2009, four builders said 50% or more of their closings were in active adult; in 2016, that number rose to 10. In 2009, three builders posted a majority of their closings in the luxury/custom category. That number jumped to 11 in 2014 but fell back to six last year.
Move-up Moves Up
The real beneficiary of the flight from affordability among the BUILDER 100 has been the move-up segment. In 2009, 70 builders posted more than 50% of their closings in move-up. In 2010, that number rose to 75, and, over the next six years, the move-up category attracted more builders each year, topping out at 111 in 2016.
There are many reasons behind the migration to higher-priced offerings. As the input costs of land, labor, and materials rise, builders have to build more-expensive homes to earn a healthy margin. But Jade J. Rahmani, an equity research analyst with New York City-based KBW Research, says there have also been forces on the demand side that have pushed builders to the move-up market.
“The focus on move-up has to do with the fallout from the 2007–2008 recession and the impact on the entry-level buyer, the weak job market, lower rate of householder formation, and tighter mortgage financing,” says Rahmani.
