Strong in 2020, homebuilders continue to impress in 2021

In 2020, COVID-19 gave rise to a unique set of circumstances that remarkably bolstered the homebuilding industry[1]. As a consequence, we predict 14% growth in homebuilders’ revenues in 2020, more than double the 6% growth seen in 2019.

­Driving demand for housing were record low mortgage rates and tight inventory. Supply of existing homes plummeted as the appetite for open houses declined and led to fewer listings. Towards the end of 2020, housing inventory had dropped nearly 40% YoY. Homebuilders took the opportunity to step in and fill the gap leading to substantial rises in new order and backlog units[2].

For 4Q20, our algorithms predict homebuilders’ revenues will increase a healthy 15% QoQ (24% YoY) in what is a traditionally muted quarter (~1% growth historically).  For 1H21, we expect industry revenues to be 18% higher compared to 1H20. Growth will result from delivery of homebuilders’ new order and backlog units and continued growth in house prices, alongside broad market asset appreciation due to aggressive monetary and fiscal policies. As the year progresses, we anticipate additional existing homes will enter the market. However, the shortage of new homes will persist, with at least a 30% shortfall as we exit the year. Overall, for 2021, our algorithms predict high single digit growth for home prices and similar growth for homebuilders’ revenues.

 

[1] Includes LEN, DHI, PHM, NVR, TOL, TMHC, KBH, MTH, MDC, TPH, CCS, MHO, BZH, HOV and LGIH
[2] New orders units represent the number of new sales contracts, net of cancellations. Backlog units represent the number of homes under sales contracts, but not yet closed.