Company margins are susceptible to changes in demand as contractors, developers and remodelers aggressively compete on price. As a result, industry profit margins have declined by about 7.0% in the last 5 years.
Los Angeles, California (PRWEB) October 10, 2011
The Home Builders industry is expected to continue to rebound sharply in 2012, with revenue forecast to rise 18.1% to $211.7 billion. Growth is due to improvements in the general economy, housing market and credit sector. According to an updated study by industry research firm IBISWorld, in the five years to 2016, industry revenue is expected to rise at an average annual rate of 16.0% to $376.4 billion as the market bounces back from its cyclical downturn, which was caused by the bursting of the housing bubble and Great Recession. Industry Analyst Kathleen Ripley adds “mounting demand for new housing due to population growth and new household formation will support growth. Other factors will also benefit industry growth, including favorable housing affordability – such as low inflationary conditions, low interest rates and rising household income, government subsidies and support to first-time home buyers and stressed mortgage holders; and lower supply due to the downturn in construction that occurred during the economic downturn.”
In the five years to 2011, revenue fell by an average annual rate of about 18.9% to $179.3 billion. During this period, the industry experienced the most significant downturn in the housing market, thanks to the subprime mortgage crisis, the burst of the real estate bubble and the collapse of the credit markets. In line with falling revenue, employment contracted an average annual rate of 14.3% to 684,983 people. As new construction projects slowed, so did the need for new employees.
Industry earnings (EBIT) are expected to account for about 17.5% of industry revenue in 2011, down from a cyclical peak of 22.5% in 2006. “Despite the dramatic decline in revenue, the industry has been able to maintain profitability due to its reliance on subcontractors and leased equipment. Low fixed costs allow industry participants to increase and decrease expenses rapidly because most employees and capital costs are based on the demand for new projects.” Ripley explained. At the same time, company margins are susceptible to changes in demand as contractors, developers and remodelers aggressively compete on price during periods of low demand. As a result, industry profit margins are estimated to have declined by about 7.0% in the five years to end-2011.
The Home Builders industry has a particularly fragmented company composition. Many firms hold important positions in relatively narrow regional or adjoining markets. The industry leaders experience significant competition from local players and from companies that produce multi-family homes and commercial and municipal buildings. Key national players in order of market share include: Pulte Homes, DR Horton, Lennar Corporation, NVR Inc. and KB Home Inc.
For more information visit IBISWorld’s Home Builders Industry report.
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Firms in this industry primarily construct single-family homes, where units are separated by ground-to-roof walls and have no units above or below. The industry also includes remodeling of houses and other residential buildings. Industry operators are general contractors, design build-firms and single-family construction management firms acting as general contractors and builders. The industry does not include speculative builders or contractors that build on account for sale.
Major products and services in this industry
Construction management services
Home Builders Industry Report Key Topics
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
About IBISWorld Inc.
Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.
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