Giant single-family homebuilders defy odds amid mortgage rate turbulence

Today's newsletter is brought to you by Groundfloor!

Groundfloor powers fractional real estate investing for new and experienced investors. We've seen 10% annualized returns across our portfolio, and our award-winning platform allows you to see returns in just days (not years), with no fees. Join hundreds of thousands of others who have already invested over $1.3 billion in real estate debt through Groundfloor.

Groundfloor is open to accredited and non-accredited investors and qualifies all its opportunities through the S.E.C. offering more transparency than other platforms. With our Auto Investor account, you'll be automatically invested and diversified across dozens (even hundreds!) of projects immediately. Download the app or visit Groundfloor to set up an account today.

All things considered, single-family homebuilding has been fairly resilient despite the significant spike in mortgage rates over the past two years.

At least, that's the case for the big boys.

Among the 10 largest publicly traded homebuilders tracked by ResiClub, they collectively recorded 77,255 net new home orders in Q1 2024. This marks an increase of +18% from the 65,376 orders in Q1 2023, when builders were still adjusting strategies to “meet the market” following the 2022 rate shock.

The total for Q1 2024 is only -7% lower than Q1 2021 when these 10 builders had a combined 82,795 net new orders. Not too shabby, considering that Q1 2021 was one of the hottest quarters during the Pandemic Housing Boom.

Big picture: Big builders were able to absorb the mortgage rate shock, offer affordability adjustments like mortgage rate buydowns and outright price cuts in some markets, and still maintain profit levels that exceed pre-pandemic norms. That narrative is still holding true in early 2024 despite mortgage rates sitting back over 7.0%.

While, all things considered, single-family homebuilding has shown resilience, multifamily hasn’t been so lucky. The leading indicators, like permits and housing starts, tell us that once builders work through the historic post-pandemic multifamily pipeline (including an expected 50-year high for multifamily completions in 2024), there will be some degree of a multifamily rollover.

On Tuesday, Builders FirstSource—a building materials giant ranked No. 172 on the Fortune 500—told investors they’re already starting to feel the multifamily slowdown.

“As we expected, a weakening multi-family market and higher mortgage rates driving affordability challenges were headwinds to start the year,” wrote Dave Rush, CEO of Builders FirstSource, in their earnings release.

Last week, ResiClub PRO members (paid tier) got these 3 additional research articles:

Deciphering housing inventory trends in +800 metros and +3,000 counties

The commercial real estate correction, as told by 3 charts

5 housing markets where inventory is up the most—and 5 where it's down the most