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Bv10 jonathansmoke 1020

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  • The biggest companies are still feeling the effects of a four-year hangover. The results provide further proof that the biggest companies grew too fast. They took big advantage of the financial bubble and are now paying the price. I did some analysis and this is not because the owner-built share of the market took a bigger percentage of sales; it’s way down as well. I’m going to attribute this to the fact that these companies do the lion’s share of their business in tracks. That business has been hurt more in the last year than custom, on-your-lot, and in-town construction. You could also make the case that many of the biggest builders remain in the hardest-hit markets last year, California and Florida. I think everyone in the room would agree that the biggest companies in the industry, particularly the public companies, enjoy some profound advantages today, particularly access to the public markets and capital. And they will use them to power ahead of the pack in the future. In the time being, though, they are paying for some excesses of the housing boom.
  • Public builder share of the Builder 100 has been on a steady decline since 2006, after rising sharply during the early half of the decade. Last year, the public companies on our top 100 list closed only 103,888 homes. At the top of the market, if you added the volume of D.R. Horton and Lennar, it nearly equaled 100,000 homes. There were 439,000 closings of single family homes last year, including condos.
  • Final slide– intent is to establish the understanding by our clients that chances are we can help resolve any of their intelligence or research challenges. Encourage us to “just ask” us about data or assistance they need for marketing, strategic planning or research driven sales programs.
  • Transcript

    • 1. Builder Consolidation: When Will Public Builders Begin Taking Market Share? Jonathan Smoke, Hanley Wood Market Intelligence October 2010
    • 2. Will There Be Consolidation?
      • A long argued outcome of the evolution of the industry—consolidation as evidenced in the share captured by the largest builders
      • Now the argument has taken a decidedly public angle
      • Advantages for the large public builders
        • Access to inexpensive long-term capital
        • Economies of scale
          • National
          • Local
        • Cost advantage
        • Land pipeline
        • Brand
      • A matter of when, not if
    • 3. Is the Reverse Happening? The BUILDER 100 Share Retreated
      • B UILDER 100 SHARE OF SINGLE-FAMILY HOME CLOSINGS
      • (includes condos)
    • 4. More Contrary Evidence: Public Builder Market Share Declines in Total Public builder percentage of all single-family housing sales Source: Builder 100, builder reported closings as % of Census reported new home sales
    • 5. National Numbers Are a Red Herring– As It Relates to Scale, Only the Largest Markets Matter
      • The largest 100 markets in the country, represent 67% of new construction (20 year average of total permits)
      • The largest 50 markets represent 54%
      • The next 100 markets only add 14% more permits
      • There are only 38 markets outside of the largest 100 with 1,000+ permits forecasted in 2010
    • 6. New Home Demand Is Concentrated in Major Markets—Where Jobs and Growth Are Most Prevalent Source: Hanley Wood Market Intelligence
    • 7. Not Much of a Retreat in the Largest 100 Metropolitan Statistical Areas Source: Housing Intelligence Pro
    • 8. Looking at the Largest 100 MSAs, The Most Concentrated Markets Are Already Getting More Concentrated Tucson, AZ Riverside, CA Public Builder % of New Home Market, 2010 YTD thru July Change in Public Builder % 2005-2010 Bradenton-Sarasota-Venice, FL Colorado Springs, CO Source: Housing Intelligence Pro Austin, TX
    • 9. 13 Major MSAs Already Have Publics Dominating and Positions Growing
      • Akron, OH
      • Albuquerque, NM
      • Baltimore-Towson, MD
      • Bradenton-Sarasota-Venice, FL
      • Charleston-North Charleston-Summerville, SC
      • Las Vegas-Paradise, NV
      • Orlando-Kissimmee, FL
      • Phoenix-Mesa-Scottsdale, AZ
      • Riverside-San Bernardino-Ontario, CA
      • Sacramento--Arden-Arcade--Roseville, CA
      • Stockton, CA
      • Tampa-St. Petersburg-Clearwater, FL
      • Tucson, AZ
    • 10. Albuquerque
      • So far in 2010, DR Horton and Pulte-Del Webb-Centex control just shy of half of the new home market in Albuquerque
      • DR Horton has grown from 10% of the market in 2005 to over 30% in 2010 (YTD through September)
      • Pulte-Del Webb-Centex has grown from 13% in 2005 to over 15% in 2010
    • 11. Charleston, SC
      • Top 6 Builders in 2010:
        • PULTE-DEL WEBB-CENTEX
        • RYLAND HOMES
        • BEAZER HOMES
        • DR HORTON
        • LENNAR
        • KB HOME
      • All of the top publics have grown share over 2005 except for Beazer
    • 12. Baltimore, MD
      • Publics command almost two-thirds of the new home market in Baltimore in 2010
      • NVR owns over half of that
        • In terms of closings, NVR is 33 times larger than the average builder in Baltimore
      • NVR’s market share has grown from under 20% in 2005 to over 33% so far in 2010
    • 13. Orlando, FL
      • Seven publics constitute almost half of the new home market in Orlando by themselves in 2010:
        • DR HORTON
        • PULTE-DEL WEBB-CENTEX
        • LENNAR
        • KB HOME
        • MERITAGE HOMES
        • RYLAND HOMES
        • MI HOMES
      • DR Horton, Lennar, Meritage and MI Homes have each at least doubled their share since 2005
    • 14. Phoenix, AZ
      • In Phoenix there are still a few large privates with sizable market share
        • Fulton Homes – 6%
        • Blandford Homes – 5%
        • Shea – 4%
      • But 11 of the top 17 builders are publics and they now control over half of the market
      • And the publics are more actively buying lots and land in 2010
    • 15. Riverside-San Bernardino, CA
      • Publics now have over two-thirds of the new home market in Riverside-San Bernardino
      • 5 publics are the largest builders in the market and control almost half of the market by themselves:
        • DR HORTON
        • KB HOME
        • PULTE-DEL WEBB-CENTEX
        • LENNAR
        • STANDARD PACIFIC HOMES
      • Of these 5, only Lennar hasn’t grown share since 2005
      • Riverside-San Bernardino was one of the most active lot and land purchase scenes earlier in 2010
        • The most active builders: Pulte-Del Webb-Centex, KB Home, Standard Pacific, and DR Horton
    • 16. What Makes for an Ideal “Publics’ Market”
      • Size
        • In the absence of proximity to other large markets, it makes it difficult to run an efficient operation that leverages scale—there is an absolute size that a market must be to justify a public’s presence
      • Growth opportunity
        • Without continued growth expectations, a public can only grow by taking market share– there is a limit to how far that can go
      • Constraints
        • The strongest advantage comes from significant land constraints, tight restrictions on development, and expensive land development environments
    • 17. The Remaining Large Markets
      • Candidates for eventual public dominance (not dominated yet, but moving most rapidly in that direction):
        • Indianapolis
        • Richmond
        • San Jose
        • Charlotte
        • Baltimore
        • Atlanta
        • San Diego
      • Markets that may never fit the scenario:
        • Colorado Springs, Seattle, Dallas, Columbia (SC), Detroit
    • 18. Implications
      • Big Builders
        • The public builders will emphasize the markets they have chosen strategically
        • They all can’t be #1 with 20-30% market share
        • A few markets that are on the bubble may be influenced to become more constrained
      • Smaller Builders
        • Emergence of dominant local/regional builders like Mungo Companies in markets like Columbia, SC, that offer some size but are too small for most publics
        • In markets where Publics dominate, smaller builders will have to follow a niche strategy
      • Suppliers
        • If business depends on volume, publics can’t be ignored
    • 19. Hanley Wood Market Intelligence– One Source for Complete Coverage
      • Nationwide coverage
        • Market-level and county-level economics and forecasts
        • Granular visibility of consumer demand and household growth
      • Residential Construction
        • Coverage in over 90% of the U.S. housing market
        • Complete market and builder visibility
        • Lead tools focused on new home sales and permits
      • Residential Remodeling
        • Unique coverage of remodeling activity through Residential Remodeling Index
        • Granular analysis of Remodeling Demand
        • Multi-year forecasts available
      • Custom Strategic Services
        • Custom modeling and analysis to tailor measures and forecasts
        • Integration of demand intelligence into marketing programs