If the

Source: John Burns Real Estate Consulting

What’s more, this data tends to skew toward larger, high-volume production builders with greater clout among vendor suppliers, and with more ways to pull through their costs with volume.

For the lion’s share of homebuilders – small companies, a prospect of cost-price neutrality is even more challenging.

A new National Association of Home Builders Builders’ Cost of Doing Business Study notes that among its sample homebuilder firms, there’s very little margin to work with on the cost side, ruling out flexibility on pricing.

Builders’ profit margins declined in 2020 for the first time since 2008.  As Figure 2 shows, their average gross margin fell dramatically during the housing recession (from 20.8% in 2006 to 14.4.% in 2008), but then rose steadily through 2017 (19.0%) before edging lower in 2020 (18.2%).  Similarly, builders’ average net margin plummeted between 2006 and 2008 (7.7% to -3.0%), gradually increased through 2017 (7.6%), and then slipped back in 2020 (7.0%).

Long and short of it, it’s tough to imagine how this time rules of supply and demand can play out in such a way that the cure for high prices will be high prices.

Wild cards might be one we’ve noted and one, given the parallel universes of down and dirty and messy world homebuilding and real estate next to the apparently gravity-free metaverse of Silicon Valley corporatocracy, we should mention.

  • As Calculated Risk’s Bill McBride cautions, we may have entered a “short-term” window where forces can “overwhelm demographics” and, somehow, rein in household formation (more multigen, adult kids in basements, double- and triple-ups, etc).
  • Elon Musk could buy a top 5 ranked homebuilder and develop an automated, roboticized, industrialized, modern manufacturing infrastructure to produce carbon-neutral, high-design, homes and communities on land he could also by taking over a Starwood or a Brookfield.

He appears to have time on his hands for such imaginings.

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