Home Builders Lose out on Sales Amid Record Demand

Home Builders Struggle to Meet Demand

Some of the nation’s biggest home builders including D. R. Horton (DHI) and KB Home (KBH) are losing out on new sales as they struggle to catch up with outsized demand. Sales of new homes set multiple records during 2020 and the early part of 2021 as low interest rates and a shift to working remotely drove demand for more space.

Homebuilders have not been able to meet that demand due to labor shortages, supply shortages, lack of available property, and rising materials costs. As a result, companies have been turning away business. Net sales orders in D. R. Horton’s second quarter fell 17% year-over-year as a result of the current market trends.

Home Prices at Record Highs

The inability for home builders to meet the demand is driving home prices to record highs. This comes at a time when home prices are already at all-time highs. In June the median price for a new home was $361,800—up 6.1% year-over-year.

For individual home builders the increases are even greater. The average price for home sales closed during the second quarter at Taylor Morrison Home (TMHC) increased 9.8% compared to a year ago. New order prices in the quarter increased 31.8%. Meritage Homes (MTH), which reported a 18% rise in new orders during the second quarter, has seen its average sales price increase 4%.

Stocks Hold Despite Lost Sales

As wait lists to buy homes get longer, different builders are taking different approaches. Some are selling homes as the orders come in while others are requiring offers above list prices. Others are holding lotteries to sell what limited inventory they have. A lot of builders are also holding off selling properties until they are almost complete to take advantage of rising home prices.

While home builders have been losing sales in this red-hot real estate market, their stocks have not suffered. The S&P Homebuilders Select Industry Index is 31% higher—even though it is off its high, which was set in May. It will be interesting to see if investors continue to reward the group if supply constraints continue to hurt sales.

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