Large U.S. Homebuilders Raise Prices as Existing Home Supply Remains Tight
The prices on homebuilding have gone up as the demand has increased over the past couple of months with the prices of existing homes going up.
According to Reuters, other homebuilders Lennar Corp (LEN.N) and PulteGroup Inc (PHM.N) have raised pricing by about 1% to 3% from the previous quarter.
Public homebuilders on average have raised prices in about two-thirds of their communities, said BTIG analyst Carl Reichardt.
This comes as the pricing gap between existing and new homes has narrowed, following a price appreciation in the resale market.
The median July sales price of new homes sold was $436,700 compared with the median existing home price of $406,700, according to data by the U.S. Census Bureau and the National Association of Realtors.
“Homebuilders are generally price-takers,” said Matthew Bouley, analyst at Barclays. “When the existing home market is seeing a price appreciation, it supports pricing power for new construction.”
Room for further price hikes and faster construction cycles will continue to lift the profit margins for homebuilders in the second half of the year, say analysts.
“We think there is an additional leg higher in margins ahead of us,” said Bouley.
However, as a consequence of recovery in new construction prices since last year, “affordability is close to its worst levels in at least the last three decades,” said James Egan, Morgan Stanley housing strategist.
It declined 12% in June from a year earlier, but the pace of deterioration was the slowest since 2021, added Egan.
This will force homebuilders to remain sensitive to market traffic and sentiment among customers, when it comes to the degree of price hikes implemented, said BTIG’s Reichardt.
