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Bv10 jonathansmoke 1020

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Bv10 jonathansmoke 1020

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

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