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Giant homebuilders are eating up more market share

This week, homebuilding giant Lennar—ranked as the No. 2 homebuilder with 73,087 new home closings in 2023—announced that it is acquiring Rausch Coleman Homes, ranked as the No. 21 homebuilder with 4,437 new home closings in 2023.

Rausch Coleman Homes, which operates in 16 markets across Alabama, Arkansas, Florida, Kansas, Missouri, Oklahoma, and Texas, will expand Lennar's presence in the U.S. Southeast and Southwest.

The Rausch Coleman Homes purchase also accelerates a longstanding homebuilding trend: Giant publicly traded homebuilders gaining market share.

Publicly-traded homebuilders have been taking market share for decades. Back in 2005, publicly-traded homebuilders made up 25% of U.S. new home closings. That figure slowly ticked up to 37% by 2019. However, the recent mortgage rate shock has coincided with publicly traded homebuilders' market share spiking to 51% in 2023. Zonda chief economist Ali Wolf predicts it could soon top 60%.

Speaking to ResiClub in July, KB Home CEO Jeffrey Mezger said that big builders continue to take market share from smaller private homebuilders. The higher interest rate environment has only sped it up.

“The numbers support that the larger builders are [taking market share]—we're taking share from two sources. One is smaller builders that are having difficulty with financing. Banks are very conservative right now on what they'll lend a small builder to go develop lots. But, you're also taking share from resale because of the limited resale inventory,” Mezger told ResiClub in July.

Publicly traded homebuilders have been taking market share from smaller builders for several reasons:

1. Access to capital: Publicly traded homebuilders have greater access to capital through equity markets, which enables them to fund large-scale projects and secure land more aggressively. This financial stability allows them to navigate economic downturns more effectively than smaller builders, who often face challenges with cash flow or financing.

2. Increased demand for built-to-rent communities: Publicly traded homebuilders have been tapping into the growing BTR sector. Small private builders may find it harder to compete in this space.

3. Economies of scale: Large homebuilders benefit from economies of scale, enabling them to negotiate better deals with suppliers and contractors, reducing per-unit costs. Many publicly traded homebuilders have built their own in-house mortgage company, including PulteGroup (Pulte Mortgage) and Lennar (Lennar Mortgage). This allows them to offer homes at more competitive prices or with higher margins, putting pressure on smaller builders who can't achieve the same cost efficiencies.

4. Ability to absorb risks: Larger builders may be better equipped to absorb risks such as fluctuating material costs, regulatory changes, or economic downturns.

Monthly ResiClub PRO Webinar

Once per month, ResiClub PRO members can attend a webinar hosted by me—a long-time data journalist and housing analyst.

I’ll use these webinars to connect the dots, so you can clearly understand what’s happening across the housing market, including:

• Homebuyer and seller power shifts

• Regional inventory and home price shifts

• Homebuilding

• Single-family rentals and build-to-rent

• Mortgage

Our next monthly webinar will be held on Monday, November 25th at 3 pm ET.