Builder gross profit margins fell to 18.2% in 2020, while net profits slipped to 7%, according to NAHB Builders’ Cost of Doing Business Study.
This is the first profit margin decline since 2008.
The study surveyed single-family builders across the U.S. It found that builders averaged $13.7 million in revenue for the fiscal year of 2020, of which $11.2 million (81.8%) was spent on costs of sales, such as land costs and construction costs. An additional $1.5 million (11.2%) was spent on operating expenses, such as marketing, administrative expenses, and owner’s compensation.
The study notes that shutdowns related to Covid-19 played a part in the results, as well as the need to navigate work-from-home models, supply-chain disruptions, and labor shortages.
Builders’ balance sheets were also larger in 2020 than any time since 2006, Rose Quint, NAHB’s assistant vice president for survey research, notes in a blog post.
Builders reported $9.4 million in total assets in 2020, with $6.1 million (64%) backed up by liabilities (either short- or long-term). The other $3.4 million (36%) was backed up by equity builders held in their companies.
Construction costs have contributed to the affordable housing crisis, helping to keep home prices elevated alongside competition and, now, rising mortgage rates.
NAHB’s monthly confidence index fell from the previous month to a reading of 77 in April and remains at the lowest level since September. However, the reading is still well above 50, which means builders believe that conditions are good rather than poor.