Several media reports I read over the last year implied that 2014 new home sales were “flat” compared with 2013 new home sales because builders pushed prices up so much.
I’ve said many times that I don’t believe the builders are pushing prices to result in higher gross margin to the builder…. I believe the builders are pushing along increasing input costs.
I suspect the builders’ biggest input cost increase was the cost of their lots, which are now back to “replacement” costs in the “A” — and probably even the “B” — locations of major metropolitan MSAs. (“Replacement cost” is the cost to buy the land, plus the cost to develop the lot, e.g. install roads, sewers, water, streetlights, etc. plus a profit to the developer for doing that work.) I also suspect there also hasn’t been much profit in the builders’ supply chain during the last several years, either. So the builders’ input costs of pouring concrete, framing, installing drywall, painting, etc. have gone up, too.
The first quarter 2015 earnings of several of the public builders are now out. The builders in general are reporting higher sales compared to first quarter 2014. (Up about 20% overall on five big builders reported so far.)
The builders are also reporting sales at higher prices – although the year over year percentage increases are not nearly as high as they have been recently.
And finally – the builders are generally reporting slightly lower gross margins. I suspected the new home price increases weren’t all falling to the builders’ bottom line!!!