Just wondering if anybody knows what the new home builders profit margin is now? I`m guessing they have to be getting close to giving the homes away at cost? Or are they still raking in? Just wondering because I feel if the builders have to raise prices soon, then eventually the used market has to go up too? Or at least prices will stabilize if they can`t sell for less than they are now?
new home builder profits?
- Thread starter joe123
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QUOTE (joe123 @ Nov 21 2008, 09:50 PM) Just wondering if anybody knows what the new home builders profit margin is now? I`m guessing they have to be getting close to giving the homes away at cost? Or are they still raking in? Just wondering because I feel if the builders have to raise prices soon, then eventually the used market has to go up too? Or at least prices will stabilize if they can`t sell for less than they are now?
in normal times, a builder`s profit margin is usually in the 20% range. Some builders will build in a 20% overcharge on materials per home, so that they can build every 6th home for zero cost materials wise.
In today`s market, if the builders are asked by their lenders to reduce their Lines of Credit, they will first sell off their inventory of lots. Some builders are offering to sell their lots to you with a one year interest free period.
If builders drop their prices, then prices on pre-owned homes should drop too. Most first time buyers would prefer a new home to an older home (in general).
And if prices go up for new homes, it doesnt necessarily translate into higher homes for the older homes.
in normal times, a builder`s profit margin is usually in the 20% range. Some builders will build in a 20% overcharge on materials per home, so that they can build every 6th home for zero cost materials wise.
In today`s market, if the builders are asked by their lenders to reduce their Lines of Credit, they will first sell off their inventory of lots. Some builders are offering to sell their lots to you with a one year interest free period.
If builders drop their prices, then prices on pre-owned homes should drop too. Most first time buyers would prefer a new home to an older home (in general).
And if prices go up for new homes, it doesnt necessarily translate into higher homes for the older homes.
QUOTE (joe123 @ Nov 21 2008, 09:50 PM) Just wondering if anybody knows what the new home builders profit margin is now? I`m guessing they have to be getting close to giving the homes away at cost? Or are they still raking in? Just wondering because I feel if the builders have to raise prices soon, then eventually the used market has to go up too? Or at least prices will stabilize if they can`t sell for less than they are now?
Joe,
New home prices will not be going up soon. Until demand for new homes start to outstrip supply by a significant margin, new homes will not be going up in price. Land costs are going down, the construction industry is slowing down and builders are hoping their labour costs will be going down as well. Most of the builders that I`ve talked to are not building any spec homes anytime soon, they will build as they get sales and then they are probably using a 10-15% profit margin. Some builders that have spec homes in inventory are quietly offering discounts on sales of existing homes in order to reduce carrying costs.
Sam, the 20% overage of materials is to account for waste. Builders don`t get every 6th house for no cost materials wise. They generally figure out all their costs and then add overhead and profit and try to sell the houses for a number larger than the result.
Randy Christenson
Joe,
New home prices will not be going up soon. Until demand for new homes start to outstrip supply by a significant margin, new homes will not be going up in price. Land costs are going down, the construction industry is slowing down and builders are hoping their labour costs will be going down as well. Most of the builders that I`ve talked to are not building any spec homes anytime soon, they will build as they get sales and then they are probably using a 10-15% profit margin. Some builders that have spec homes in inventory are quietly offering discounts on sales of existing homes in order to reduce carrying costs.
Sam, the 20% overage of materials is to account for waste. Builders don`t get every 6th house for no cost materials wise. They generally figure out all their costs and then add overhead and profit and try to sell the houses for a number larger than the result.
Randy Christenson
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- Jan 13, 2008
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I was just speaking with a builder this morning. Essentially he was saying that with the drop in home values, his margin has basically shrunk to almost zero.
He`s not idly sitting on the sidelines waiting for another up-market though, his company is actively trying to reduce costs to a viable level. Essentially he said that if he can get all of his trades on-board and working for more reasonable prices, he`ll be able to build 15-20 homes in 2009, whereas if he`s unable to do that, he`ll be looking at more like 5 homes next year.
Ahhh, it makes me feel good. Aren`t capitalists great?
QUOTE (joe123 @ Nov 21 2008, 09:50 PM) Just wondering if anybody knows what the new home builders profit margin is now? I`m guessing they have to be getting close to giving the homes away at cost? Or are they still raking in? Just wondering because I feel if the builders have to raise prices soon, then eventually the used market has to go up too? Or at least prices will stabilize if they can`t sell for less than they are now?
He`s not idly sitting on the sidelines waiting for another up-market though, his company is actively trying to reduce costs to a viable level. Essentially he said that if he can get all of his trades on-board and working for more reasonable prices, he`ll be able to build 15-20 homes in 2009, whereas if he`s unable to do that, he`ll be looking at more like 5 homes next year.
Ahhh, it makes me feel good. Aren`t capitalists great?
QUOTE (joe123 @ Nov 21 2008, 09:50 PM) Just wondering if anybody knows what the new home builders profit margin is now? I`m guessing they have to be getting close to giving the homes away at cost? Or are they still raking in? Just wondering because I feel if the builders have to raise prices soon, then eventually the used market has to go up too? Or at least prices will stabilize if they can`t sell for less than they are now?