- Demand for homes continues to outstrip the supply of homes for sale, driving up prices.
- Lennar Corp. CEO Stuart Miller said supply chain issues and labor shortages are compounding the problem.
- Homebuyers face fierce competition, while homebuilders reap the benefits.
The US homebuilding pipeline cannot keep up with raging demand, driving up the prices of new homes that are being built.
While that might be bad news for the many people clamoring to get their hands on homes that are becoming increasingly unaffordable, it’s good news for big developers, who are bringing in more money for each home. that they manage to finish.
Stuart Miller – the CEO of Lennar Corp., the second-largest residential construction company in the United States – said the two main factors in the situation were bottlenecks in the supply of materials and a shortage of workers construction.
“The ability to build and deliver homes has been hampered by the supply chain which is virtually interrupted, labor shortages and intense competition for scarce and titled land assets,” Miller said. to investors on Friday. call, when he shared his thoughts on how rising house prices were affecting the business.
“The supply of housing has remained quite limited and is not prone to overbuilding,” he added. “As a result, we are pleased to report operating performance that reflects the overall strength of the housing market.”
Lennar Corp. defines its first trimester as December 1 to February 28. During this period, the company saw its average delivery price climb to $457,000, up 15% from the same period a year earlier, when its average home price was $398,000. , according to its earnings report.
This supply crisis, which could last for another decade, has already contributed to house price inflation. Last month, the median U.S. home price hit an all-time high, hitting $392,000, according to Realtor.com, up 12.9% from a year earlier.
The typical home remains unaffordable for the typical American household earning around $67,000. A home is considered affordable by risk-averse personal finance experts if no more than 30% of income is spent on housing expenses, including mortgage payments, insurance and taxes.
Builders take advantage of high house prices
At the same time, the construction and sale of new homes has boosted incomes for homebuilders like Lennar.
The net profit of Lennar Corp. declined year-over-year, but residential construction operating profit increased 33.2% from $883.2 million in the first quarter of 2021 to $1.1 billion in the first quarter of 2021. during the same period in 2022, according to regulatory filings.
The nation’s largest homebuilder, Lennar’s competitor DR Horton, also saw its homebuilding profits rise last year. Its gross profit on home sales rose 60.5% between 2020 and 2021, from $4.3 billion to $6.9 billion, according to its annual report last year.
While the boom in housing demand has been a tailwind for Lennar, regulatory filings also show that inflation and high material costs have also hit the company’s balance sheet. High lumber prices mean it’s harder for Lennar to maximize revenue for every square foot of home he builds, the company reported.
Posing another challenge, housing prices could rise even further following the invasion of Ukraine as fuel and other raw materials become more expensive.
Typically, this additional expense – thousands of dollars per home – would be swallowed up by the homebuilder, but since buyers are willing to pay inflated prices for homes right now, the consumer will absorb this cost in the form of even higher house prices. , experts say.