No need to worry about your local home builder’s profit margin — they’re actually rising. CoConstruct, who provides construction project management software to over 100,000 clients, took a dive into builder margins. Analyzing client data, they found home builder profit margins climbed in Canada and the US. Despite rising material costs, buyers have been willing to absorb the increase.
US Home Builders Have Seen Consistent Profit Growth
Breaking it down, both American and Canadian home builders have seen improvements. In the US, the average margin was healthy in 2019 (14.4%) but climbed in 2020 (14.6%) and in 2021 (14.9%). American home builders didn’t even break stride through the recession.
Canadian Home Builders Have Also Seen Profits Climb
In Canada, the increases weren’t quite as smooth as in the US. The average builder margin in 2019 (12.9%) was higher than in 2020 (12.5%), as a brief market cooldown paused demand. The average profit made up for the margin compression by climbing to 13.2% in 2021.
“The consistent and increasing year-over-year growth highlights, among other things, the resiliency of the residential construction industry,” explained CoConstruct.
Canada’s profits are smaller as a share of the sale price of a home compared to the US. But homes also cost about 85% more in Canada after the exchange rate, so no need to shed a tear about the lost margins. They appear to still be quite lucrative for home builders north of the 49th.
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No way. The government explained all homebuilders are in a sudden rush to lose money as prices climbed to 60%, so they started record building for fun.
Really is a shame to not see people mourning the tragedy of developers losing money on bad investments. Look at some of the books of the ones that collapsed. You’ll see things like private construction loans with 20%+ rates, you can’t tell where half the money went, and rejections from the municipality multiple times because they’ve never built a home before and are now mad there’s regulations.
Home builders are the true victim of society. How dare you! LOL!
For real, it’s wild how many new home buyers are really into the narrative developers scaled their business up to lose money over the past two years, when in reality they price out the home and then slap on their margin *after*
Despite many people’s assertions that values will never crash because builders will stop building, I don’t agree. Maybe over the short-term, but after the initial crash it could become much easier and more profitable to be a builder. Sure the profit per house would be less, but the margin if anything could be much more. Shrinking demand means cheaper materials, cheaper labor, and faster government approvals. As a builder you may have the ability to sell for less than resale homes as well, meaning you get to siphon the demand away from them.
Having a lower input cost per unit means less financial risk as well, and less needed capital to run a construction business. Lower house prices are good for everyone except governments, banks, agents, and people left holding the bag with the current grossly overpriced inventory. A crash is going to be great for first-time/move-up buyers, and builders in general in my opinion.
Home builders are businesses that don’t take 10 to 20 years off between cycles, they shift the kind of construction they end up doing. The government is handing them money just in time to create rentals right as yields rise due to falling yields.
If you think the government is trying to fix it and not in on the scam, you have no clue how this works.
“Home builder profit margins climbed in Canada and the US. Despite rising material costs, buyers have been willing to absorb the increase”. Let’s all hope that the margins gained are not achieved by watering down Building Codes. A net-zero building creates as much energy as it uses, usually offset by renewable energy sources. The sum of the parts makes the whole, and with current technologies, it’s unlikely most new construction can claim superior efficiency. Banks that approve mortgages might consult a home inspector, but which home inspectors do you believe? High-rise developers are the worst violaters.
Developers like creating the myth of higher energy efficiency when trying to build a structure for less money/investment. The idea is to develop and flip and leave the inefficiencies and errors with the buyer.
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