After 2008, many home builders’ strategies include building larger homes. Between the high-profit margin and competition at the lower price point from distressed properties, it was the smartest approach. Now that the market has recovered, home builders are rethinking their strategy. Spoiler alert: they are doing the exact opposite.
According to Alure Homes, homes priced under $300,000 made up 50% of the company’s production last year, which is a growth of 20-30% percent.
In 2018, millennials made up the largest share of home sales. They accounted for 37 percent of the market. Homebuilders want to tap into the millennial buyer and are doing so by providing more affordable homes.
Starter homes can produce a 20% profit margin when home builders implement a strategy. This strategy? Provide fewer choices when it comes to floor plans, features, and finishes. By doing so, the builder can order materials in bulk, providing discounts and minimizing delays.
According to the Census Bureau’s new home sales report for November, the new homes priced between $200,000 and $299,000 comprised about 34% of the year to date sales. In the third quarter, the median price was $311,000.
Many builders are offering these starter homes. D.R. Horton has its Express Homes division. Because of this, 68% of the homes sold by D.R. Horton were priced under $300,000 for thier 2019 fiscal year.
Pulte and Lennar are other large builders in the starter home market. For Lennar, 40% of their business comes from starter homes.
At Pioneer Title Agency, we are proud to work with local home builders and offer a builders services department. If you are contemplating purchasing a new build, reach out today!
Pioneer Title Agency is a full service company with an operating philosophy of "Commitment to Service." The company provides title insurance, escrow, account servicing, trustee sales, as well as builder related trust services through more than 70 offices in Arizona.