This article is part of our 2022-2023 Housing Market Update Series. Join us for his HW + Virtual 2023 Housing Market Update on February 6th after the series ends. Bringing together the housing industry’s top economists and academics, the event will detail this year’s forecasts and include roundtable discussions on how these insights apply to business. This event is exclusive to his HW+ members and you can register here.
2022 was a special time for home builders. Continuing supply disruptions in his chain, rising costs, and inflation concerns make the market feel tenuous at best. Each year, we survey the homebuilder community to find out how the market is affecting their business and get a glimpse into their day-to-day operations.
Fortunately, it’s not all bad news. While much of the homebuilding industry faces turbulent conditions, our builder and his community are also resilient.our future State of the Homebuilding Industry (SORCI) Report Reflects how builders are preparing for the impact: Margins did not decrease despite slowing rate of new contracts. 31.1% of builders average $1 million or more of contracts showed profitability. The builder’s salary increase is justified compared to his 58.1% of builders who experienced an increase in sales in 2022. This figure he expects to increase to 72% in 2023.
Here are some key factors impacting the home construction market:
quality leads
40% of builders say they still struggle to understand how to get the right leads for their business. This is a key piece of the puzzle for scaling operations. The solution is also much simpler than the builders think. It’s as easy as putting quality content in front of the right audience to generate the right leads. This content, in the form of blog posts on your website, can help you promote your business with social and consistent content, as well as develop appropriate communication and frequency with your audience.
One important tactic that seems simple and is often overlooked is the importance of follow-up. Giving prospects the information to continue their educational process about your business gives them the freedom to explore what the next stage of the sales process looks like. Ultimately, a huge opportunity awaits builders who understand the importance of this factor in their business.
Subcontractor delay
61.8% of U.S. homebuilders relied on subcontractors to manage their operations in 2022. Unfortunately, subcontractor delays continue to be the biggest challenge for 37.1% of builders, an even worse statistic internationally. To manage projects effectively, builders must take into account that work schedules can change frequently due to labor shortages. If a builder decides to use a subcontractor, a wise man will ensure that the project timeline is properly managed and the lead times are properly built.
A documented process helps builders achieve industry standards. For example, builders can set goals such as a minimum 25% gross profit. We can also perform post-project audits, which more than 52% of construction firms now rely on to assess budgets, timelines, and client feedback.
Housing construction contract amount
Given the many factors at work in the construction process, builders should have a solid understanding of fixed price versus open book (or cost plus) contracts and how to correctly price their work for profit. must be
Two-thirds of the builders we surveyed operate on fixed-price contracts. We also recommend this to our clients as fixed price contracts offer higher gross margins regardless of rising material prices. Additionally, 30% of the builders we spoke to said using a fixed price contract could have added more than his 25% to the project. For a builder who relies on cost-plus contracts, 25.3% of which are signed with less than 13% of his gross margin, are unlikely to cover the fixed costs of the business.
Builders are getting smarter about their finances, including planning for project success. Successful builders we spoke to operate with tools such as project management software to ensure financial security that could otherwise leave a hole in their business. We can fill in the gaps.
Looking ahead, there is much to look forward to as the homebuilding industry continues to navigate the current landscape. Things are always uncertain in business, but wise builders understand the situation and use it to their advantage. Learning to turn is not only essential, but more important than ever.
This column does not necessarily reflect the opinions of the Editorial Board of HousingWire and its owners.
To contact the editor responsible for this article:
Sarah Wheeler [email protected]
